Canada’s inflation rate hits new 31-year high in April as grocery prices soar
Canada’s inflation rate hit a new 31-year high in April as prices surged for groceries and other everyday items, part of broad-based price hikes that are getting tougher for people to avoid.
The Consumer Price Index rose 6.8 per cent in April from a year earlier, Statistics Canada said Wednesday, edging up from 6.7 per cent in March. It was the latest in a string of troublesome reports: Also on Wednesday, Britain said its inflation rate hit a 40-year high of 9 per cent, while in the U.S. it recently came in at 8.3 per cent.
On a monthly basis, consumer prices in Canada rose 0.6 per cent. The average of the Bank of Canada’s core measures of annual inflation – which strip out volatile items, such as gasoline, and give a better sense of underlying price pressures – jumped to 4.2 per cent from 3.9 per cent.
Inflation is surging for many reasons, including rising commodity prices, some of which are tied to the Russia-Ukraine war; the persistence of supply-chain disruptions, such as the recent idling of some Chinese factories because of COVID-19 policies; and rampant consumer demand for some products, particularly durable goods, many of which are produced overseas.
In turn, the surge is heaping financial stress on many households. In April, the average hourly wage rose 3.3 per cent on an annual basis, or much lower than inflation – meaning, the average worker is seeing their purchasing power decline, a trend that’s been in place for several months.
“These are some eye-watering numbers,” said Royce Mendes, head of macro strategy at Desjardins Securities, in an interview. “The issue is not just that inflation is high – and in fact, persistently has been running high – it’s that the breadth of price increases is such that Canadians are having a lot of difficulty avoiding inflation.
Several financial analysts on Bay Street expect inflation to breach 7 per cent soon, in part because of rising costs at gas stations. The Bank of Canada “really should be open to doing whatever it takes to bring inflation down in the near term,” Mr. Mendes said.
Households are getting a frequent reminder of inflation at the supermarket. Grocery prices rose 10 per cent in April, the steepest annual increase since 1981. Statscan noted that gains are “broad-based, with consumers paying more for nearly everything at the grocery store.” Over the past year, the price of pasta has risen nearly 20 per cent, fresh fruit by 10 per cent and coffee by around 14 per cent.
Statscan said that “Russia’s invasion of Ukraine in late February put upward price pressure on food products that use wheat,” on account of both countries being major wheat exporters. “Poor weather in growing regions has also impacted prices for food,” the agency said in Wednesday’s report, noting that higher costs of food production – notably, for fertilizer and natural gas – are being passed on to consumers as well.
Housing was another source of pain. Shelter costs rose 7.4 per cent, the largest annual increase in nearly four decades. In part, that was because of sharply higher prices for energy to heat homes. Rents also rose 4.5 per cent, with larger jumps in Ontario (5.3 per cent) and British Columbia (6.4 per cent).
Gasoline prices fell slightly in April, but were still up 36 per cent from a year earlier. With the national average price of gas soaring above $2 a litre this week, energy should continue to put upward pressure on inflation.
“Barring a deep dive in oil prices in coming weeks and months, we expect that the worst is yet to come on the headline readings, and that inflation north of 6 per cent will still be with us by the end of this year,” Doug Porter, chief economist at Bank of Montreal, wrote in a client note.
Central bankers face a tough task in bringing inflation under control and defending their credibility as stewards of low and stable price growth. With Wednesday’s report, the annual inflation rate has now exceeded the Bank of Canada’s target range of 1 per cent to 3 per cent for 13 consecutive months.
The Bank of Canada has embarked on its inflation-fighting process, raising its policy rate twice this year, which took it to 1 per cent from a record low of 0.25 per cent. Bank officials say they intend to raise the benchmark rate to a “neutral” range – which neither stimulates the economy nor inhibits it – of 2 per cent to 3 per cent in short order. The central bank makes its next rate decision on June 1. Financial analysts expect another outsized rate hike of half a percentage point, matching the decision in April.
Toni Gravelle, a deputy governor at the Bank of Canada, said last week that interest rates may need to be raised above neutral under some circumstances, such as persistent supply-chain issues or a strong bump in consumer demand as COVID-19 restrictions ease.
However, he also said there were scenarios in which the bank could pause its rate-hike cycle, including if financially stretched households are forced to drastically reduce their spending owing to onerous debt-servicing costs or if commodity prices start to decline.
“These considerations should make it clear that we are not on a pre-set path of policy rate increases aimed at getting to a specific ‘terminal’ rate,” Mr. Gravelle said in a speech. “Our decisions are not on autopilot.”
Mr. Mendes of Desjardins said the risk is that central bankers move too slowly in raising interest rates and that, subsequently, the public’s view of high inflation becomes entrenched. In that scenario, he said, central banks may have to aggressively raise interest rates, which could have debilitating effects on the economy.
“Every day that inflation remains more than triple the Bank of Canada’s target, it becomes more difficult to engineer a soft landing,” he said.