The costs of gas, food and travel are making the average Canadian’s life more expensive.
Canada’s annual inflation rate jumped to 7.7 per cent in May, the fastest pace of rising consumer prices in nearly four decades, Statistics Canada reported Wednesday.
Not since January 1983 have the costs of Canadian goods and services accelerated so quickly, adding pressure to the Bank of Canada to raise interest rates again in the coming weeks to cool the economy.
The acceleration was largely due to higher prices for gasoline, which grew 12 per cent in May compared with a slight decline of 0.7 per cent in April. Excluding the cost of gas, the Consumer Price Index grew 6.3 per cent in May.
Higher prices for hotels and restaurants also contributed to the increase. The cost of travel accommodations surged 40.2 per cent — most notably in Ontario, where travel costs grew 56.8 per cent after COVID-19 restrictions kept the industry shuttered in May 2021.
Food costs at restaurants grew 6.8 per cent in May.
Grocery prices also increased to 9.7 per cent as a result of supply chain disruptions, high demand, droughts and Russia’s invasion of Ukraine.
Edible fats and oils had their largest increase on record at 30 per cent, mainly driven by the higher cost for cooking oils, Statistics Canada said. Fresh vegetables including onions, peppers and carrots grew 10.2 per cent. Meat prices rose to nine per cent, but at a slower pace than the 10.1 per cent rise in April.
“Think about all the trucks and trains that ship these items, and the energy costs to harvest food. That all plays a role in higher grocery prices,” Porter said.
Higher costs are on the horizon, said research group Capital Economics in a note Wednesday morning.
May’s CPI data “all but guarantees that the Bank of Canada will raise interest rates by … (0.75 per cent) next month, particularly with headline inflation on track to accelerate to around 8.5 per cent in June,” wrote economist Stephen Brown at Capital Economics.
One item that has not kept pace with most rising costs is wages. The average hourly wage rose 3.9 per cent year over year in May, meaning that prices grew faster on average than salaries over the past 12 months.
n recent weeks, the federal government has renewed its efforts to help Canadians cope with affordability, though economists fear their solutions may only make the inflation problem worse.
Last week, Deputy Prime Minister Chrystia Freeland highlighted $8.9 billion in previously announced spending measures to help seniors, renters and low-income families manage their living expenses while consumer prices rise.
Those measures include a 10 per cent increase in Old Age Security for seniors over 75 along with increased funding for child care.
“I do not underestimate the economic difficulties and uncertainty of the months to come,” Freeland told reporters last week.
“The measures that we have set in motion already, I think, do a pretty good job of reaching precisely those people in Canada who have the biggest challenges with affordability.”
Philip Cross, an economist and senior fellow at the Macdonald-Laurier Institute, said the federal government has to be careful not to inadvertently contribute to the economic uncertainty ahead.
The $8.9 billion dedicated to helping Canadians manage through inflation is the same kind of government stimulus that helped foster high inflation in the first place, said Cross.
“Is more spending going to bring down the price of food? No. Will it bring down the price of gas? No. If anything, these measures will only encourage people to spend more, which means that the most likely impact of those programs will be slightly higher interest rates.”
Wednesday’s data only reinforces the Bank of Canada’s motivation for slowing the economy by hiking interest rates again in July.
“The continuation of sharp and broadly based price pressures makes a 0.75 per cent hike from the Bank of Canada a near certainty, and likely means that the peak in interest rates will be higher than we previously anticipated,” wrote economist Andrew Grantham in a note on Wednesday.