A man shops at a halal grocery store in Toronto this past May. Rising inflation has had varied effects on the price of consumer goods across Canada.
Christopher Katsarov/The Globe and Mail
What is driving inflation?
Probably the biggest factor in this year’s inflation surge is simply the reality that consumer prices fell to unusual lows last year, and it’s against these low prices that we are measuring the current price environment. This is what economists are talking about when they refer to “base effects.”
When the COVID-19 pandemic hit, huge swaths of the global economy were shut down and consumers were told to stay home; demand for many goods and services plunged and prices slumped. Since inflation is typically calculated as a year-over-year change, it’s against these lows that we have been comparing the current prices, which have increased substantially as pandemic restrictions have eased. The pronounced weakness of the year-earlier comparisons have magnified the price gains in the annual inflation rate.
But there’s more to it than just a statistical quirk. The rapid reopening of many sectors of the economy has unleashed a flood of demand from consumers, which has been exacerbated by the unusually large stockpiles of household savings that built up during the pandemic.
Around the world, manufacturers, transporters and retailers have had tremendous trouble keeping up with demand. In addition, the pandemic has shifted consumer preferences to different products – home office equipment, bicycles, bigger houses in the suburbs, just to name a few – and suppliers haven’t been able to keep pace with these rapid shifts. The result has been supply shortages in numerous consumer goods as well as the raw materials to make them – driving up prices.
How does the current Canadian inflation rate compare historically?
The August consumer price index (CPI) inflation rate is 4.1 per cent, up from 3.7 per cent in July. The last time the rate was higher was in March, 2003 (4.2 per cent), during a temporary surge that was another case of base effects – namely, a slump in year-earlier gasoline prices.
But from a broader historical perspective, 4.1 per cent is, comparatively, nothing. Inflation was north of 10 per cent in the mid-1970s and again in the early 1980s. In the early 1990s, when the Bank of Canada formally adopted maintaining low and steady inflation as its primary monetary policy objective, inflation still hovered around 5 per cent. But since the central bank set its inflation target at 2 per cent in 1995 – using interest rates to help steer inflation toward that rate – inflation has averaged very close to that target.
What types of products or services are most affected by inflation?
Main upward contributors to the 12-month change in the consumer price index
Aug. 2020 to Aug. 2021
Homeowners’ replacement cost index
+14.3%
Gasoline
+32.5%
Food purchased
from restaurants
+3.2%
Other owned accommodation expenses
+14.3%
Purchase of passenger vehicles
+7.2%
MURAT YÜKSELIR / THE GLOBE AND MAIL,
SOURCE: STATISTICS CANADA
Main upward contributors to the 12-month change in the consumer price index
Aug. 2020 to Aug. 2021
Homeowners’ replacement cost index
+14.3%
Gasoline
+32.5%
Food purchased
from restaurants
+3.2%
Other owned accommodation expenses
+14.3%
Purchase of passenger vehicles
+7.2%
MURAT YÜKSELIR / THE GLOBE AND MAIL,
SOURCE: STATISTICS CANADA
Main upward contributors to the 12-month change in the consumer price index
Aug. 2020 to Aug. 2021
Homeowners’ replacement cost index
+14.3%
Gasoline
+32.5%
Purchase of
passenger vehicles
+7.2%
Other owned accommodation expenses
+14.3%
Food purchased
from restaurants
+3.2%
MURAT YÜKSELIR /
THE GLOBE AND MAIL,
SOURCE: STATISTICS CANADA
The August CPI data from Statistics Canada show that goods (up 5.8 per cent year over year) have seen much higher inflation than services (up 2.7 per cent). The big contributor has been gasoline, up more than 32.5 per cent from a year earlier, when prices were severely depressed by pandemic shutdowns. Home replacement costs were up almost 14.3 per cent, reflecting the surge in prices for homes in the past year.
On the other hand, prices for some things have declined significantly in the past year. Mortgage interest costs were down 9.3 per cent in August from a year earlier, reflecting deep rate cuts that the Bank of Canada made last spring to aid the economy in the face of the pandemic. The price of telephone services was down 14.2 per cent. Travel tours are down 20.8 per cent year over year.
Main downward contributors to the 12-month change in the consumer price index
Aug. 2020 to Aug. 2021
Passenger
vehicle
insurance
premiums
Mortgage
interest
cost
Travel
tours
Telephone
services
Fresh
vegetables
THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA
Main downward contributors to the 12-month change in the consumer price index
Aug. 2020 to Aug. 2021
Passenger
vehicle
insurance
premiums
Mortgage
interest
cost
Travel
tours
Telephone
services
Fresh
vegetables
THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA
Main downward contributors to the 12-month change in the consumer price index
Aug. 2020 to Aug. 2021
Passenger
vehicle insurance
premiums
Travel
tours
Telephone
services
Mortgage
interest cost
Fresh
vegetables
THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA
How can I adjust my spending to avoid the worst of inflation?
If you’re spending, be inflation-aware. Consider planning your renovation for next year or 2023 in hopes prices for building materials ease back. Lumber prices have come back down, but other costs may still be elevated. Prices for new and used cars have been on the rise as people resume driving farther than the local grocery store. Where possible, keep your existing ride for another year or so until the post-pandemic vehicle-buying rush dies down. Grocery inflation is expected to continue through the rest of the year. If you’re able to buy in bulk, you may be able to dodge some future price increases.
Is there a ‘winner’ in inflation?
There are some investments that have performed well in past periods of inflation. Gold is one example, while others are commodities like oil and metals. Real estate is also considered a good hedge against inflation. You can get exposure to real estate by investing in real estate investment trusts.
What will bring inflation down?
Time – at least for a significant portion of the increase. Over the next few months, the year-over-year price comparisons will become less stark, as the price recovery from the earlier COVID-19 shutdowns increasingly works its way into the year-earlier numbers. For example, the average national price of gasoline in August, 2020, was $1.06.6 a litre; by mid-February of 2021, it was $1.20. In addition, we can expect unusual price pressures caused by the sudden reopening of many sectors of the economy to ease, as the initial rush of demand moderates and activity returns to normal.
Many economists believe that the high prices themselves will help solve the inflation situation, as it adds incentive to producers to increase their capacity. This will take time, but as supply catches up with demand, price pressures will dissipate.
From a policy standpoint, the biggest weapon lies with the Bank of Canada. If inflation remains persistently high, the central bank will eventually step in and raise its key interest rate from the current record low of 0.25 per cent. The bank has already taken other actions to reduce the amount of stimulus that its monetary policy is injecting into the economy – specifically, it has gradually reduced the amount of government bonds that it has been buying on the open market since the COVID-19 crisis began.
Interest rates are considered the bigger weapon to slow inflation; but the bank has said that it doesn’t want to turn to rate hikes until the economy has returned to full capacity. Based on the bank’s latest projections, that is unlikely before the second half of next year. In the meantime, the central bank is willing to tolerate inflation in the 3-per-cent range – which actually represents the top end of its tolerance band around its target of 1-to-3 per cent, designed to give it some flexibility when inflation gyrates. But if inflation stays above that band for uncomfortably long, the bank may start leaning toward acting sooner rather than later.
A key question is how much of this is temporary, and how much may be permanent. While economists are generally confident that a substantial portion of the recent inflation surge will pass as things return to something approaching normal in the coming months, it’s clear that at least some of these price pressures may be longer lasting.
Human Resources Officers must be very busy these days what with the general turnover of employees in our retail and business sectors. It is hard enough to find skilled people let alone potential employees willing to be trained. Then after the training, a few weeks go by then they come to you and ask for a raise. You refuse as there simply is no excess money in the budget and away they fly to wherever they come from, trained but not willing to put in the time to achieve that wanted raise.
I have had potentials come in and we give them a test to see if they do indeed know how to weld, polish or work with wood. 2-10 we hire, and one of those is gone in a week or two. Ask that they want overtime, and their laughter leaving the building is loud and unsettling. Housing starts are doing well but way behind because those trades needed to finish a project simply don’t come to the site, with delay after delay. Some people’s attitudes are just too funny. A recent graduate from a Ivy League university came in for an interview. The position was mid-management potential, but when we told them a three month period was needed and then they would make the big bucks they disappeared as fast as they arrived.
Government agencies are really no help, sending us people unsuited or unwilling to carry out the jobs we offer. Handing money over to staffing firms whose referrals are weak and ineffectual. Perhaps with the Fall and Winter upon us, these folks will have to find work and stop playing on the golf course or cottaging away. Tried to hire new arrivals in Canada but it is truly difficult to find someone who has a real identity card and is approved to live and work here. Who do we hire? Several years ago my father’s firm was rocking and rolling with all sorts of work. It was a summer day when the immigration officers arrived and 30+ employees hit the bricks almost immediately. The investigation that followed had threats of fines thrown at us by the officials. Good thing we kept excellent records, photos and digital copies. We had to prove the illegal documents given to us were as good as the real McCoy.
Restauranteurs, builders, manufacturers, finishers, trades-based firms, and warehousing are all suspect in hiring illegals, yet that becomes secondary as Toronto increases its minimum wage again bringing our payroll up another $120,000. Survival in Canada’s financial and business sectors is questionable for many. Good luck Chuck!. at least your carbon tax refund check should be arriving soon.
NORMAN WELLS, N.W.T. – Imperial Oil says it will temporarily reduce its fuel prices in a Northwest Territories community that has seen costs skyrocket due to low water on the Mackenzie River forcing the cancellation of the summer barge resupply season.
Imperial says in a Facebook post it will cut the air transportation portion that’s included in its wholesale price in Norman Wells for diesel fuel, or heating oil, from $3.38 per litre to $1.69 per litre, starting Tuesday.
The air transportation increase, it further states, will be implemented over a longer period.
It says Imperial is closely monitoring how much fuel needs to be airlifted to the Norman Wells area to prevent runouts until the winter road season begins and supplies can be replenished.
Gasoline and heating fuel prices approached $5 a litre at the start of this month.
Norman Wells’ town council declared a local emergency on humanitarian grounds last week as some of its 700 residents said they were facing monthly fuel bills coming to more than $5,000.
“The wholesale price increase that Imperial has applied is strictly to cover the air transportation costs. There is no Imperial profit margin included on the wholesale price. Imperial does not set prices at the retail level,” Imperial’s statement on Monday said.
The statement further said Imperial is working closely with the Northwest Territories government on ways to help residents in the near term.
“Imperial Oil’s decision to lower the price of home heating fuel offers immediate relief to residents facing financial pressures. This step reflects a swift response by Imperial Oil to discussions with the GNWT and will help ease short-term financial burdens on residents,” Caroline Wawzonek, Deputy Premier and Minister of Finance and Infrastructure, said in a news release Monday.
Wawzonek also noted the Territories government has supported the community with implementation of a fund supporting businesses and communities impacted by barge cancellations. She said there have also been increases to the Senior Home Heating Subsidy in Norman Wells, and continued support for heating costs for eligible Income Assistance recipients.
Additionally, she said the government has donated $150,000 to the Norman Wells food bank.
In its declaration of a state of emergency, the town said the mayor and council recognized the recent hike in fuel prices has strained household budgets, raised transportation costs, and affected local businesses.
It added that for the next three months, water and sewer service fees will be waived for all residents and businesses.
This report by The Canadian Press was first published Oct. 21, 2024.
TORONTO – A new report says many Canadian business leaders are worried about economic uncertainties related to the looming U.S. election.
The survey by KPMG in Canada of 735 small- and medium-sized businesses says 87 per cent fear the Canadian economy could become “collateral damage” from American protectionist policies that lead to less favourable trade deals and increased tariffs
It says that due to those concerns, 85 per cent of business leaders in Canada polled are reviewing their business strategies to prepare for a change in leadership.
The concerns are primarily being felt by larger Canadian companies and sectors that are highly integrated with the U.S. economy, such as manufacturing, automotive, transportation and warehousing, energy and natural resources, as well as technology, media and telecommunications.
Shaira Nanji, a KPMG Law partner in its tax practice, says the prospect of further changes to economic and trade policies in the U.S. means some Canadian firms will need to look for ways to mitigate added costs and take advantage of potential trade relief provisions to remain competitive.
Both presidential candidates have campaigned on protectionist policies that could cause uncertainty for Canadian trade, and whoever takes the White House will be in charge during the review of the United States-Mexico-Canada Agreement in 2026.
This report by The Canadian Press was first published Oct. 22, 2024.
