Canada’s Annual Inflation Rate Spikes to 6.7% in March, Highest Since 1991

Canada’s inflation rate hit 6.7% in March, the fastest annual increase in more than three decades as Russia’s attack on Ukraine pushed up oil prices and a pandemic-related supply chain crunch dragged on. The March increase in the consumer price index compared with a gain of 5.7% in February, and was the highest reading since inflation hit 6.9% in January 1991 when the GST was introduced.

“Prices have increased in a single month as much as we saw over the course of the entire first year of the pandemic,” said David Macdonald, senior economist with the Canadian Centre for Policy Alternatives. “These are historically high increases in prices across the board.”

The big driver fuelling inflation was higher prices at the pumps as gasoline prices rose 39.8% in March compared with the same month a year ago. Statistics Canada said the consumer price index would have been up 5.5% year over year if it had excluded gasoline from its calculations, suggesting far broader price pressures.

Prices were driven higher in March on the back of the country’s hot housing market, supply chain constraints and the war in Ukraine that has affected prices for oil and food, the agency said.

Homeowner replacement costs, which includes prices for new homes, rose 12.9% year-over-year in March, Statistics Canada said.

Grocery store prices rose 8.7% year-over-year, the fastest annual rate since March 2009. Prices for dairy products and eggs rose 8.5%, the largest annual increase in dairy and egg prices since February 1983. To see a further comparison of grocery and other consumer items, read this article by the Toronto Star. 

The avian flu outbreak in parts of Canada could send poultry prices even higher if more birds have to be euthanized, Fred Bergman, senior policy analyst with the Atlantic Provinces Economic Council, said. The Canadian Food Inspection Agency said that about 260,000 birds have been euthanized or killed by the virus in Alberta and Ontario amid the latest outbreak.

Meanwhile, Russia’s invasion of Ukraine was also blamed for jumps in pasta prices and cereal, the latter rising at the fastest annual pace since June 1990. Russia and Ukraine are major wheat exporters.

Higher food prices tend to affect low-income households more, said Talan Iscan, Dalhousie University economics professor. “It’s hurting lower-income earners more because they spend a larger portion of their budget on food, which is increasing at an even faster rate than overall inflation,” he said.

Provincially, Statistics Canada said growth was most pronounced in Prince Edward Island, where prices rose 8.9% year-over-year.

As prices rose faster on an annual basis in March, average hourly wages were up by 3.4%, still far behind inflation and eating into consumers’ purchasing power across income levels, said BMO chief economist Douglas Porter. “This is not sustainable to have a gap of more than three percentage points between inflation and wages,” he said. “Either inflation has got to come down fast, or wages have got to rise up to to meet if not exceed inflation in fairly short order, and I think it’s going to be a little bit of both.”

The growing rate of inflation has spooked economists and central bankers amid signs that Canadians are beginning to expect inflation to stay higher for longer. The Bank of Canada has increased its key policy rate by half a percentage point, raising the benchmark interest rate to 1% with warnings that more rate hikes are to come this year.

“The Bank of Canada has been behind the curve and they’ve recognized that and now they have to catch up,” Desjardins chief economist Jimmy Jean said. “That’s why they went out with that 50-basis-point rate hike, and we think they have another one in store for the next meeting.”

Rising interest rates are expected to encourage saving and curb borrowing and spending, helping cool Canada’s housing market and the cost of goods. As demand goes down, prices tend to rise more slowly — or even edge down — easing inflation.

But the dampening effect of higher interest rates won’t be immediate. “It does take time for those interest rate hikes to have an effect on the economy and on inflation,” he said.

The average of the three core measures of inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 3.77% in March. That’s the highest recorded since March 1991 and up from the 3.53% in February.

Source: Globe and Mail
Source: The Star
Source: The Star
Source: The Star

Canadian Retail Sales Edged Up 0.1% to $59.9-Billion in February

Statistics Canada announced that retail sales rose 0.1% to $59.9 billion in February, while core retail sales — which exclude sales at gasoline stations and motor vehicle and parts dealers — added 1.4%. However, in volume terms, retail sales fell 0.4% in February.

TD Bank economist Ksenia Bushmeneva said consumer spending is expected to remain robust in the near-term, supported by easing public health restrictions, significant pent-up demand and a healthy labour market.

“But higher prices and interest rates will begin to weigh on household budgets in the second half of the year, prompting consumers to tighten their purse strings,” Bushmeneva wrote in a report. “Retail sales may also see some weakening as consumption continues to shift away from goods and toward services, such as travel and hospitality.”

Sales in February were up in six of the 11 subsectors tracked. Statistics Canada said sales at clothing and clothing accessories stores gained 15.1% for the month, while building material and garden equipment and supplies dealers rose 5.6%. Sales at gasoline stations added 6.2%.

Meanwhile, sales at motor vehicle and parts dealers fell 5.1%, the largest drop for the group since a 6.2% drop in December 2020. General merchandise stores saw sales drop 1.2%.

As for e-commerce, on a seasonally adjusted basis, retail e-commerce sales were down 4.6% in February. On an unadjusted basis, retail e-commerce sales declined 23.1% year over year to $2.6 billion in February, accounting for 5.3% of total retail trade. The share of e-commerce sales out of total retail sales fell 2.0% compared with February 2021, when many retailers were mandated to close their brick-and-mortar stores to in-person shopping in several regions across the country.

Looking ahead, Statistics Canada said its initial estimate for retail sales in March suggests a gain of 1.4% for the month, but cautioned the figure will be revised.

Nikita Perevalov, director of economic forecasting at Scotiabank, said a large part of the increase in March was likely due to high prices as the annual inflation rate for the month was 6.7%. “High consumer prices point to a vulnerability at the heart of the Canadian economy — household budgets may not be able to withstand for long record increases in prices of food and energy, forcing weaker growth in spending on discretionary items,” Perevalov wrote in a note to clients.

Source: Globe and Mail
Source: The Star
Source: Statistics Canada