The increase, at 5.7 percent, exceeded analysts’ expectations of a 5.5 percent increase and is the largest since August 1991, when the inflation rate reached 6.0 percent, according to Statistics Canada. It was the 11th month in a row that the Bank of Canada’s control range of 1% to 3% was exceeded.
“Price rises were widespread in February, hurting Canadians’ wallets,” Statscan reported.
What is the current rate of inflation in Canada?
Highlights. In January 2022, the Consumer Price Index (CPI) increased by 5.1 percent year over year, up from 4.8 percent in December 2021.
What is the inflation rate in Canada in 2022?
Consumer prices in Canada rose 5.7 percent year over year in February, up from 5.1 percent in January. This was the biggest increase since August 1991 (+6.0%). The month of February was the second in a row that headline inflation exceeded 5%.
In February, price rises were widespread, putting a strain on Canadians’ wallets. When compared to the same month a year ago, consumers paid more for gasoline and groceries in February 2022. Housing costs continued to rise, reaching their highest year-over-year level since August 1983.
The Consumer Price Index (CPI) surged 4.7 percent year over year in February, surpassing the gain of 4.3 percent in January, when the index rose at its quickest rate since its inception in 1999.
Following a 0.9 percent increase in January, the CPI increased by 1.0 percent in February, the biggest increase since February 2013. The CPI increased 0.6 percent on a seasonally adjusted monthly basis.
How much will inflation be in 2021?
The United States’ annual inflation rate has risen from 3.2 percent in 2011 to 4.7 percent in 2021. This suggests that the dollar’s purchasing power has deteriorated in recent years.
On an annual average basis, the CPI rises at the fastest pace since 1991
Following a 0.7 percent increase in 2020, the CPI increased by 3.4 percent on an annual average basis in 2021. This was the fastest growth rate since 1991 (+5.6%).
The annual average CPI climbed 2.4 percent in 2021, slightly faster than in 2020 (+1.3 percent) and slightly faster than in 2019 (+2.3 percent).
Seven of eight major CPI components up in 2021
Transportation prices (+7.2 percent) increased at the quickest rate among the eight major components. Clothing and footwear costs fell 0.3 percent in 2021, making it the only significant component to dip in the previous year.
Higher prices in all provinces and territorial capital cities
Prince Edward Island had the highest annual average price increase (+5.1%), followed by Nova Scotia (+4.1%). Saskatchewan (+2.6 percent) had the slowest price growth among the provinces.
Annual average prices rose the highest in Whitehorse (+3.3%), followed by Yellowknife (+2.2%), and the slowest in Iqaluit (+1.4%) among the territorial capital cities.
Why is Canada’s inflation so high?
In January, inflation reached a fresh three-decade high, putting greater pressure on the Bank of Canada to hike interest rates for the first time since the pandemic began. According to Statistics Canada, the consumer price index increased 5.1 percent from a year ago in January, up from 4.8 percent in December and marking the first time since 1991 that inflation has surpassed 5%. It was the tenth consecutive month that inflation surpassed the Bank of Canada’s goal range of 1% to 3%. (From the Globe & Mail)
Here are several McGill University experts who can remark on this subject:
Canadian economy and Bank of Canada
“Canada’s current inflation is transitory in nature and supply-driven, as a result of the ideal convergence of COVID-19, natural disasters, supply-chain disruptions, and escalating global tensions.” Most inflationary pressure comes from the demand side, which the Bank of Canada is considerably better equipped to handle. Supply-side inflation, on the other hand, is significantly more difficult for the Bank to control. If the present round of inflation does not result in rising wage demands, it will fade away as soon as the supply-side difficulties are resolved. If rising wage demands result, the Bank will be forced to respond quickly, potentially sparking a protracted recession that could destabilize the housing and financial sectors.”
Moshe Lander is a Course Lecturer in the Department of Economics, where he teaches economic statistics, economic theory, and financial institutions. Inflation, recession, and unemployment are among his specialties.
What is a reasonable rate of inflation?
The Federal Reserve has not set a formal inflation target, but policymakers usually consider that a rate of roughly 2% or somewhat less is acceptable.
Participants in the Federal Open Market Committee (FOMC), which includes members of the Board of Governors and presidents of Federal Reserve Banks, make projections for how prices of goods and services purchased by individuals (known as personal consumption expenditures, or PCE) will change over time four times a year. The FOMC’s longer-run inflation projection is the rate of inflation that it considers is most consistent with long-term price stability. The FOMC can then use monetary policy to help keep inflation at a reasonable level, one that is neither too high nor too low. If inflation is too low, the economy may be at risk of deflation, which indicates that prices and possibly wages are declining on averagea phenomena linked with extremely weak economic conditions. If the economy declines, having at least a minor degree of inflation makes it less likely that the economy will suffer from severe deflation.
The longer-run PCE inflation predictions of FOMC panelists ranged from 1.5 percent to 2.0 percent as of June 22, 2011.
What happens if inflation rises too quickly?
If inflation continues to rise over an extended period of time, economists refer to this as hyperinflation. Expectations that prices will continue to rise fuel inflation, which lowers the real worth of each dollar in your wallet.
Spiraling prices can lead to a currency’s value collapsing in the most extreme instances imagine Zimbabwe in the late 2000s. People will want to spend any money they have as soon as possible, fearing that prices may rise, even if only temporarily.
Although the United States is far from this situation, central banks such as the Federal Reserve want to prevent it at all costs, so they normally intervene to attempt to curb inflation before it spirals out of control.
The issue is that the primary means of doing so is by rising interest rates, which slows the economy. If the Fed is compelled to raise interest rates too quickly, it might trigger a recession and increase unemployment, as happened in the United States in the early 1980s, when inflation was at its peak. Then-Fed head Paul Volcker was successful in bringing inflation down from a high of over 14% in 1980, but at the expense of double-digit unemployment rates.
Americans aren’t experiencing inflation anywhere near that level yet, but Jerome Powell, the Fed’s current chairman, is almost likely thinking about how to keep the country from getting there.
The Conversation has given permission to reprint this article under a Creative Commons license. Read the full article here.
Photo credit for the banner image:
Prices for used cars and trucks are up 31% year over year. David Zalubowski/AP Photo
What will be the CPP cost of living rise in 2022?
Your pension will increase by 2.4 percent starting in January 2022. All retirees, survivor pensions, and deferred pensions of former and divested members are subject to an annual cost of living adjustment (COLA).
What will be the rate of inflation in 2022?
According to a Bloomberg survey of experts, the average annual CPI is expected to grow 5.1 percent in 2022, up from 4.7 percent last year.