Canada’s inflation rate, which has been making unwanted headlines for months, has hit another high-water mark. In June 2022, the annual rate of inflation was 8.1 per cent compared to June 2021, its largest yearly change since January 1983. Food inflation continues to outpace that figure.
That figure is up 0.4 per cent from the 7.7 per cent that had been recorded in May. The consumer price index acceleration in June is consistent with what economists expected, which was a rise above eight per cent.
Statistics Canada said the price of gasoline was the biggest single contributor to overall inflation, as pump prices were up by 54.6 per cent compared to the same month a year ago.
Food, whether at home or out, a driving force
Food is also a key factor.
June’s food inflation rate in Canada was 8.8 per cent, the same as it had been in May, meaning that like gasoline it is outpacing the country’s general inflation rate.
Inflation at restaurants sits at just over seven per cent, while inflation at the grocery store is higher at 9.4 per cent. Menu prices are expected to keep rising as they have done in the U.S., where they hit 40-year highs earlier this year.
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Among food items, the largest increase in prices was for edible fats and oils, which rose by 28.8 per cent year-over-year.
Canadian foodservice started 2022 better than expected, according to Restaurants Canada, but sustained and worsening inflation could threaten that recovery.
In fact, a recent report found that nearly half of Canadian restaurants are struggling to stay afloat and fear they will not even make it to fall.
What’s next?
The outlook, at least in the short term, is not encouraging.
In its most recent rate decision, the Bank of Canada opted to hike its key interest by a full percentage point to 2.5 per cent, the largest single increase in more than 20 years, as fears mount over rising inflation expectations among consumers and businesses.
The Bank of Canada has raised its key overnight lending rate four times this year in an attempt to control inflation, and governor Tiff Macklem has warned there could be more to come.
Meanwhile, the Canadian Dairy Commission has already recommended that, under “exceptional circumstances,” the farm gate milk price increase by around two cents per litre on September 1 to help producers combat inflation. That would represent a highly rare second rise in the space of a year, after farm gate milk prices rose six cents per litre, or roughly 8.4 per cent, on Feb. 1.
As the cost of living has continued to rise, wages in Canada are lagging, rising 5.2 per cent in June on a year-over-year basis.
Bank of Canada warnings
The Bank of Canada’s Macklem said before the latest figures were released, per CBC, that general inflation could stay in the range of “a little over” eight per cent for a few more months. The Bank then expects the rate to fall to around three per cent by the end of 2023 and to the two per cent target in 2024.
In the meantime, Macklem urged small business owners to avoid building the current pace of price increases into their contracts.
“You can see this creates a self-perpetuating cycle,” he said. “So as a business, don’t plan on the current rate of inflation staying. Don’t build that into longer-term contracts. Don’t build that into wage contracts. It is going to take some time, but you can be confident that inflation will come down.”
Cautious optimism
Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University in Halifax, is cautiously optimistic that sooner rather than later, the food inflation rate specifically will begin to fall again.
“We believe food inflation in Canada may have already peaked,” Charlebois wrote for Canadian Grocer, noting that supply-chain challenges are slowly improving.
However, there’s no doubting the situation is threatening to many. Charlebois notes that while food inflation is a normal phenomenon, it generally sits at an ideal rate of around 1.5 to 2.5 per cent per year. Until recently, at least. “Food inflation is critical for our food economy, but a 10 per cent rate is just not sustainable.”
Charlebois writes that Canadians should not expect prices to drop anytime soon, year to year, but the rate at which food prices are rising is slowing decreasing. “We should end the year at about seven per cent,” he concluded, “unless some other geopolitical crisis occurs.” While still much higher than ideal, that would at least represent a drop from this summer peak.
