Inflation remained elevated once again in March, adding another round of price increases to Americans’ already-strained wallets.
The Bureau of Labor Statistics reported that 12-month price growth accelerated from 3.2% in February to 3.5% in March, matching consensus forecasts among economists.
Excluding food and energy, which represent commodities with more volatile prices, the so-called core 12-month reading was unchanged in March at 3.8%.
If there was any relief, it was in grocery prices, which were up just 1.2% on the year.Justin Sullivan / Getty Images
Some of the items seeing the largest 12-month leaps in price gains included auto insurance, which soared 22.2%; domestic services like home cleaning, up 10.9%; baby food and formula, up 9.9%; and outpatient hospital services, up 8.3%.
If there was any relief, it was in grocery prices, which were up just 1.2% on the year. And prices for new and used vehicles fell.
But Greg McBride, chief financial analyst at Bankrate, put the situation succinctly in an email following Wednesday’s release.
“There is no improvement here, we’re moving in the wrong direction,” he said.
On paper, the U.S. economy has looked solid. The unemployment rate has now remained below 4% for the longest stretch since the 1960s. Stocks have been at all-time highs. The economy continues to add jobs.
But since the start of the pandemic, Americans have seen average prices increase more than 20% overall — giving people a sense that the cost of many goods and services, not to mention housing, has surged to unreasonable levels.
When will prices come down?
So what will cause price growth to finally slow down to the Federal Reserve’s 2% target?
Unfortunately, it usually takes a major economic crisis for broad categories of prices to reverse. Instead, the best that consumers can hope for is that they stop going up so fast.
While there are some signs that it’s happening — grocery price increases, for instance, have finally fallen below 2% after surging during the pandemic — economists say it’s likely to still take some time for inflation to truly subside.
Complex economic forces, they say, continue to keep price growth elevated.
A significant worker shortage sparked by the pandemic — especially for front-line service employees — helped push hourly pay higher. But this resulted in pushing up prices on the consumer side, since labor costs represent a significant portion of the overall cost of given goods or service.
Meanwhile, supply chain disruptions that emerged during the pandemic have yet to fully subside, said Sarah House, a managing director and senior economist at Wells Fargo.
She pointed to automobile prices, which have surged more than 20% since the start of the pandemic for new vehicles and more than 30% for used vehicles. While the pace of their price increases has abated, difficulties in sourcing auto parts, plus the loss of experienced technicians, have pushed vehicle prices higher.
This, in turn, has pushed auto insurance rates higher — and it turns out that car insurance commands a significant percentage of the overall increase in consumer prices.
“The services side is where we’re continuing to see stronger [price] growth,” House said. “That’s where we’re still getting an elevated degree of inflation from.”
Stagnant pay and higher borrowing costs
Americans’ pay has barely kept up with the price increases. While federal stimulus at the outset of the pandemic helped give people a cash cushion during the worst of it, there is an emerging consensus that this same cushion helped drive prices higher by giving people money to spend.
On net, Bureau of Labor Statistics data shows that the effect of inflation has caused Americans’ average hourly pay to rise by just a few cents compared with where it was at the start of the pandemic.
The Federal Reserve, which is in charge of taming price growth, in part by raising interest rates, has sought to fight fire with fire. By raising the cost of borrowing money, the central bank has tried to reduce demand for goods and services, ultimately pushing price growth down.
The Fed’s interest rate hikes have indeed caused borrowing costs for everything from credit cards to automobiles to homes to climb to levels not seen in years.
For many Americans, that’s meant getting locked out of the housing market, not to mention paying credit card rates above 20% and auto loan rates above 8%.
But inflation has persisted, surprising many economists. At the start of the year, the consensus forecast was for economic growth to slow, allowing the Fed to start cutting interest rates this spring, with a total of three cuts for 2024.
But a growing number of analysts now say that, at a minimum, rate cuts will be delayed. Still others say there won’t even be three cuts.
Despite all the challenges, the risk of a recession that would lead to significant job losses remains low. Yet there are signs that consumer jitters are accelerating. The New York Federal Reserve reported Monday that fears of job losses are climbing and that workers who are already out of a job say getting hired is now more difficult than it was prior to the pandemic.
While about one-quarter of Americans report their household financial situation to be better than a year ago, about one-third report being worse off.
It all adds up to a precarious situation. In a speech last week, Federal Reserve Chair Jerome Powell called the economic outlook “still quite uncertain.”
“The job of sustainably restoring 2% inflation is not yet done,” he said.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
