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Canada’s Inflation Steps up to a Nearly 40-Year High

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Canadian annual inflation rate

Canada, alongside many other countries, has seen the effects of rampant inflation. As a result, many central banks are preparing for a possible recession in the coming months. Inflation, while it can vary from the direct source, primarily comes from the rise of costs associated with consumer goods and services. Energy prices, which were once negative, recently reached a staggering $120 USD per barrel, contributing significantly to inflation at gas stations in multiple countries.

Similar to other countries, Canada has followed closely behind the United States in terms of Inflation. Just recently, the United States reached an 8.6% inflation rate as consumer-oriented items pushed the Consumer Price Index (CPI) higher. The United Kingdom also experienced inflation of 9.1% in May, far higher than Canada’s inflation rate, but that gap is quickly closing in.

 

Current Inflation

In April, Canada’s inflation rate hit a 31-year high of 6.8%. Inflation has continued to remain elevated according to May’s CPI results of 7.7%, now pushing towards a nearly 40-year high. Rampant inflation is continuing to be primarily caused by food, shelter, energy, and commodities prices, at least those that are consumer-oriented. It doesn’t seem to be slowing down anytime soon either. Supply chain issues and other macroeconomic factors are forcing businesses to raise their prices to combat rising costs that consume their earnings.

Alongside record-high oil and gas prices, the invasion of Ukraine disrupted global supply chains that provided basic necessities, one of which is fertilizer, that can exponentially increase the costs of food production across Canada. This indirectly contributes to CPI through grocery prices and further squeezes the pockets of Canadians.

As a result, spending from consumers could decrease on non-essential goods and services. This is what led the TSX and S&P 500 indexes to experience sharp declines since the start of this year, particularly stemming from stocks that had high expectations fused into the stock price.

 

How to Slow Inflation

Slowing inflation is going to be a difficult task for the Bank of Canada, but it’s certainly possible. For starters, the policy interest rate now stands at 1.50%. In comparison, the policy rate was only 0.25% in January of this year. Canadians have seen two consecutive 50 basis point increases in just two months with possibly more to come if inflation continues to worsen. These actions could cool down the economy in preparation for a possible recession.

Another effective solution to dismantling inflation is easing supply chain restraints and shortages. Unfortunately, a majority of these critical supply chains reside overseas, making it nearly impossible to drive a substantial difference. As a result, Canada has limited options. Interest rates can only go so far, and supply chains are certainly a major factor in the inflation we all see today.

 

Conclusion

Everyday consumers, investors, and business owners are all asking the same question in regards to inflation, when will it ever cool down?

The answer remains relatively unknown. Although, rising interest rates are going to hamper inflation over time and likely return purchasing power to the pockets of Canadians over the next few years if operations go according to plan.

 

Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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 Press. All rights reserved.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

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