The worst inflation in 40 years will leave its mark

The worst inflation in 40 years will leave its mark

Official figures confirm what we already suspected: inflation for all of 2022 is the highest in 40 years. The good news is that the worst of price hikes is behind us.

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Inflation eventually reached 6.8% in Canada and 6.7% in Quebec in 2022, Statistics Canada announced on Tuesday. You have to go back to 1982 to find a worse value at 10.9%.

The main drivers of inflation in 2022 were energy prices, which increased by 22.5%. Even if you take them out of the calculation, you get a rate of 5.7% for the year.

The Bank of Canada aims to keep inflation within a target range of 1-3%. Over the last 12 months, only one of the eight components of the consumer price index (CPI) has not exceeded 3%, namely clothing and shoes (1.4%).

Transport costs increased by 10.6%, food by 8.9% and housing by 6.9%.

At the grocery store and retailer, these price increases are accompanied by new prices, which have now become the norm.

“No one is forecasting negative inflation for the next few months or years. The prices we’re seeing are the new benchmark,” said Desjardin’s senior economist Benoit Durocher.

End the year with 2%

Nobody is expecting record inflation in 2023 either, because at 6.8% for 2022 it is already “super high”, observes David Dupuis, lecturer at the University of Sherbrooke and ex-economist at the Bank of Canada.

Reference points for measuring cost of living growth this year will be the record increases of 2022.

“Over time, we will compare ourselves to higher prices, which will lower the inflation rate,” explains Benoit Durocher.

So if we start 2023 with inflation at “around 6%,” we should end the year at “around 2%.”

Halloween inflation and supply problems play spoilsport
1665898992 837 Halloween inflation and supply problems play spoilsport

The bite of the rate hike

In the coming months, adds David Dupuis of the University of Sherbrooke, interest rate hikes will also take full effect.

“We can already see it with a decline in real estate,” he said.

The first rate hike by the Bank of Canada was last March and “it is often said that it will take 18 to 24 months for the full effects to be felt”.

So, which brings us to fall 2023 to see “the real bite” of policy rate hikes, which have surged from 0.25% to 4.25% in 2022.

“The impact will be great. There is a way to see where the bank has already done too much,” the economist said.

In short, the remedy is being administered and it remains to be seen whether the scourge of high inflation will be cured.

“We keep our finger on the pulse of the patient, who is not doing so badly,” says David Dupuis, explaining the Canadian economy.

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