Canada’s inflation nears 40-year high as gas prices soar

OTTAWA –

The soaring gas prices caused the May annual inflation rate to soar to its highest point in nearly 40 years. As the rising cost of living for Canadians strained household budgets, it boosted expectations that the Bank of Canada would opt for a massive interest rate increase next month.

Statistics Canada saidWednesday’s consumer price index rose 7.7 percentage points compared to May last year. This is the fastest pace of growth since January 1983, when it was 8.2 percent. This is almost a percentage point more than April’s 6.8 percent gain.

TD Bank managing director Leslie Preston saidA new generation of Canadians is experiencing high inflation.

“If you aren’t over 40, you have never lived through inflation like this, and unfortunately, we are not expecting much of a reprieve going forward,” Preston wrote in a report.

The May reading was based on an increase of 34.8 per cent in energy prices compared to last year, and gasoline prices increasing 48.0 per cent compared to last year. The annual inflation rate for May was 6.3 percent, compared with 5.8 % in April.

In an effort to control inflation, the Bank of Canada has increased its key interest rate target by three times this year.

It has also said it is prepared to is prepared to “act more forcefully” if needed, leading to speculation by economists that it could raise rates by three-quarters of a percentage point next month, matching a move by the U.S. Federal Reserve last week.

Jimmy Jean, chief economist at Desjardins saidOver three quarters of the components of inflation were higher than three percent, the highest level of the Bank of Canada’s target range.

“We have a record low unemployment rate, rising wages, so an economy that is really above its current capacity and that’s really in the in the backyard of central bankers,” Jean said.

“You could argue that there’s nothing we can do about supply chains and the pandemic and you know all those supply shocks that have happened, but when it comes to domestic demand and there being too much demand for the level of supply that there is, that’s really their responsibility.”

The average of three core measures of inflation closely monitored by the Bank of Canada rose from 4.43 to 4.73 percent in April to 4.73 percent in May.

Carolyn Rogers, Bank of Canada senior deputy Governor saidWednesday’s inflation report showed that inflation is affecting Canadians and making it difficult to afford basic necessities.

“We know inflation is keeping Canadians up at night, it’s keeping us up at night, and we will not rest easy until we get it back to target,” Rogers saidAt an event in Toronto

“We’ve been clear all along, the economy’s in excess demand, inflation’s too high, rates need to go up.”

Statistics Canada, May saidThe price of food purchased in stores increased 9.7 percent compared to a year ago. This is similar to the April increase.

The cost of edible oils and fats increased 30.0 percent compared to a year ago. This is the largest increase in recorded history, mainly due to higher prices for cooking oil. Fresh vegetable prices increased 10.3 percent.

The cost of services rose 5.2% in May compared to a year ago. This is a rise of 4.6 percent in April. This was due to Canadians eating out more often and travelling more.

The prices for traveller accommodation increased by 40.2 percent compared to a year ago. However, the prices paid for food at restaurants rose 6.8 percent.

Nathan Janzen, Royal Bank assistant chief economist saidWhile a lot of growth is due to higher prices for food and energy, there are increasing costs for a wider range of goods and services.

He saidWhen price pressures increase across a wider range goods and services, there is a risk that business and consumer price expectations will become unanchored.

“When that happens, that’s an environment where it’s much more difficult for central banks to get inflation back under control,” he said.

– With files by Ian Bickis, Toronto.

This report by The Canadian Press first appeared June 22, 2022.