OTTAWA — Decades-high inflation has Canadians worried about the rising cost of living, but as bleak as things may seem, Canada appears to be doing better than many other major economies.
Its national inflation rate is still lower than that of the United States, the European Union and the United Kingdom, whose year-on-year inflation reached a staggering 11.1% in october.
Price pressures have started to ease in Canada, with gasoline prices falling from record highs and annual inflation holding steady at 6.9% in October despite a rebound at the pumps.
Yet despite glimmers of hope that the worst is behind Canadians, many have seen their purchasing power erode as wage growth keeps pace with inflation.
Inflation in Canada hit the highest levels since 1981 over the summer, with rates rising steadily since the lifting of COVID-19 restrictions. Prices rose 8.1% in June from a year earlier.
And even as the federal Liberals respond to the policy challenge of inflation by announcing additional aid for Canadians, opposition politicians have seized on the issue as an opportunity to argue that the government is failing on issues of the cost of life in the country.
But Canada has plenty of company in the fight against high inflation.
A host of global challenges, from the Russian invasion of Ukraine to tangled supply chains, have rapidly driven prices up around the world.
Pandemic support programs and low interest rates also made it easier for people to spend money as countries reopened, adding demand to economies that were already struggling to supply goods and services.
Today, with central banks acting in unison to stifle inflation, Canada’s extraordinarily high inflation rate is still below that of its major allies.
BMO Chief Economist Douglas Porter says it’s difficult to draw comparisons between countries because of differences in how inflation is calculated.
However, it is fair to say that Canada is doing relatively better, he said in an interview.
“Even with that slight tag of warning, I still think the mainstream story holds that Canada generally has lower inflation than most major economies,” Porter said.
The economist noted that Switzerland, Japan and China are the main outliers in this trend, keeping inflation in the 2-3% range.
And like Canada, inflation in the United States appears to be slowing. The latest inflation report from the US Bureau of Labor Statistics shows that the inflation rate slowed to 7.7% in October, a pleasant surprise for forecasters.
Porter attributes more intense inflationary pressures south of the border to the reopening of the U.S. economy earlier in the pandemic and its federal government doling out more aggressive fiscal stimulus in response to COVID-19.
Across the Atlantic, a reliance on Russian energy has led to even greater pressures.
The United Kingdom, which is suffering from its highest level of inflation in 41 years, is not alone in experiencing double-digit rates. The European Union saw prices in October increase by 10.6% compared to the previous year.
After Europe slapped economic sanctions on Russia over its invasion of Ukraine, the country cut off its natural gas supply to Europe, sparking fears over the cost of living ahead of months of winter.
“That’s the main reason why the inflation rate in Europe is so much higher than it is here in North America,” Porter said.
Central banks around the world are scrambling to tackle high inflation with interest rate hikes designed to slow economic growth.
And although the Bank of Canada has been criticized for waiting too long to raise interest rates, Porter says it has acted faster and more aggressively than other central banks.
“I think the Bank of Canada got it earlier than other central banks. And that’s one of the reasons why our inflation rate is a little bit lower,” he said.
Since March, Canada’s central bank has raised its key rate six times in a row, marking one of the fastest cycles of monetary tightening in its history. Its key interest rate rose from 0.25% to 3.75%, and Governor Tiff Macklem warned that Canadians should expect interest rates to rise even further.
The US Federal Reserve also began raising interest rates in March at a similar pace, with the top of its range now at 4%.
The Bank of England raised its key rate by three-quarters of a percentage point in its last decision meeting, but its key rate is still trailing at three percent.
The European Central Bank was the slowest, raising its key rate last month to 1.5%.
Porter said faster action by the Bank of Canada and the US Federal Reserve means inflation could fall in North America faster than in other regions.
But he warned that the road ahead will not be easy.
“I think we all have to brace ourselves for a bit more protracted fight to get inflation under control.”
This report from The Canadian Press was first published on November 19, 2022.
Nojoud Al Mallees, The Canadian Press
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