Canadian inflation highest in 30 years

 Canadian inflation highest in 30 years

Canadian inflation spiked in December 2021 as food prices and home ownership climbed.

Canada's consumer price index (CPI) increased by 4.8% in December 2021 compared to the same period in 2020, as announced by Statistics Canada. This is the highest level since September 1991, when inflation reached 5.5%. Last month's CPI increase was also higher than November 2021 (4.7%) and matched the market's forecast, according to TD Securities.

Food prices rose 5.2% - the fastest in about 13 years. The cost of owning a home also increased by 5.2% - the highest in about 14 years. This week's data from the Real Estate Association of Canada shows that standard home prices in Canada jumped to a record 26.6% in December.

Core inflation (excluding petrol and food prices) is also the highest in 30 years, with an increase of 2.93% in December. Andrew Kelvin, chief strategist at TD Securities, said that the CPI report will make the The Bank of Canada raises interest rates, currently at 0.25%, next week.

Consumers shop for goods in a supermarket in Canada. Photo: Zuma Press

Consumers shop for goods in a supermarket in Canada. Photo: Zuma Press

Interest rate hike expectations emerged after the Canadian central bank's quarterly business outlook survey was released earlier this week. Accordingly, the survey shows that a second wave of high inflation is forming. Businesses in this country are also expected to increase wages at a faster rate than in the previous 12 months to attract and retain workers due to a shortage of staff.

Due to difficulties in the supply chain, companies plan to accelerate investment in machinery, equipment and buildings to meet domestic and foreign demand. For implementation, they intend to pass these costs on to the customer. "Indicators related to inflation expectations and the degree of economic stagnation often show high and persistent inflation," said Veronica Clark, economist at Citi.

The Bank of Canada is expected to make a decision on interest rates on January 26. They are tasked with maintaining inflation 2%, or within the target range of 1-3% that the Government of Canada sets for the period until the end of 2026.

Governor Tiff Macklem said last month that central bank officials were increasingly uncomfortable with the magnitude of price increases. Tu Nguyen, an economist at consulting firm RSM Canada, said that pressure to raise interest rates is increasing for the central bank of Canada. "However, it is difficult for the agency to address the biggest cause of inflation: supply chain disruptions caused by the pandemic," she said.