Inflation is about to get worse in 2022, and almost everyone in Canada will feel the pressure

Illustration showing 2022 inflation in Canada (Illustration by Klawe Rzeczy)

(Illustration by Klawe Rzeczy)

Following Blake Doyle’s life and work in Charlottetown is taking a wild ride through inflationary Canada. In this sense, it is like everyone else on Prince Edward Island, where Statistics Canada shows that the cost of living has risen more than in any other province. Gasoline approached $ 1.50 per liter at the end of October. At the supermarket, chicken breasts cost about $ 3 per kilogram more than a year earlier, while the price of a block of butter had gained $ 1.63 to $ 5.29. While real estate is not the nightmare, it is in other parts of Canada, housing costs have risen 10.7 percent in one year, more than double the national average.

But few perspectives capture the breadth of this troubling image like Doyle, a proud local businessman with a diverse portfolio of businesses, services and properties. In its residential rental buildings, energy costs are rising more than the government allows landlords to increase rents. Your hiring and human resources company hears frequently about employers’ struggles to find and retain staff; most haven’t increased wages yet, he says, but they probably will. His brother runs an outdoor supply retailer where everything is in demand and supplies are running low, especially bikes and bike parts. At Doyle’s eyewear store, supply shortages have forced him to limit his selection of frames, though for now he’s reluctant to make customers pay more. “We are still happy to try to get customers,” he says, “so we don’t want to affect our prices too much.”

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Across Canada, household costs in 2021 rose like never before in nearly a generation. The nationwide inflation rate in September reached 4.4 percent, the highest since 2003 (in the PEI, it reached an overwhelming 6.3 percent). And the turbulent climb seems not over. The Bank of Canada forecast that inflation will worsen in late 2021 to around 4.8 percent, a three-decade high, and will continue above target levels well into the new year.

The result will be an economic chain reaction that will affect almost everyone in the country. Families will spend more to stock their refrigerators and heat their homes; Faced with rising costs, workers will demand higher wages from employers, who are shelling out more for rents, supplies and merchandise. But if the central bank takes steps to control these effects by raising interest rates, mortgage costs will rise sharply for many, and businesses will pay more to borrow money, mitigating any relief from lower relative prices. . “It’s not the double-digit inflation of the 1970s,” says Sohaib Shahid, director of economic innovation at the Conference Board of Canada. “But I think the pinch will be felt.”

You could forgive some older Canadians who dismiss all of this as the hand-wringing avocado toast game. It pales in the face of long periods of hyperinflation in the late 1970s. But it is a jolt after a prolonged period of quiet and lazy rising prices. Before the Consumer Price Index soared to 3.4 percent in April, year-on-year inflation had not been above three percent in any monthly reporting period since the end of 2011. And it remained above that. level, a cautionary indicator for the Bank of Canada, through the end of October, the longest stretch since the early 1990s.

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There was disagreement in the fall between Bank of Canada Governor Tiff Macklem and private bank leaders over whether this is a transitional cycle or something more structural and lengthy. Macklem initially attributed it to rising oil prices and temporary disruptions to the global supply chain. As a consolation, he cited the recent shock to lumber prices that eventually receded once supply rose again to align with demand.

Illustration showing 2022 inflation in Canada (Illustration by Klawe Rzeczy)

(Illustration by Klawe Rzeczy)

Other experts believe that the supply chain will take longer to take off and that Canadians who have saved during the pandemic will spend quickly, flooding the economy with consumer dollars when demand is already out of balance. Over the course of October, Macklem gravitated toward his point of view, saying that pressures would remain more “persistent,” while the central bank adjusted its inflation forecast accordingly.

However, there is no debate about who gets hurt in those moments: Canadians already struggling to make ends meet. The lowest 20 percent of families spend about a third of their total income on housing, while the top 20 percent spend a fifth, Shahid says. Those in the lowest echelon spend 15 percent of their income on food, compared with eight percent in the highest echelon. And the less wealthy bear the brunt of rising energy costs, as they tend to live in less energy-efficient homes. So more low-income families will face a dilemma, Shahid says: pay energy bills or spend on other necessities in life.

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That is the heart of the problem. It’s no good having items like new furniture, yoga pants and restaurant meals that account for most of the inflation, wrote Derek Holt of Scotiabank in a recent note, are the must-haves. “When it’s your house, your car and gas supplies, your grocery bill and your utilities that make the biggest weighted contributions to inflation, then clearly we’re looking at something that impacts a pretty big chunk of a typical household’s budget. “.

This reality has been reaching the doors of food banks nationwide. The one in Prince Albert, Sask., Saw 25 percent more customers in 2021 than the previous year, even as the benefits of the government pandemic propelled residents into distress. When Thanksgiving rolled around, the food bank had no turkeys to hand out, as they often do, because no one donated the suddenly more expensive poultry. At a low-cost vegetable growing operation called Jenny’s Garden, located on the outskirts of the northern city of Saskatchewan, Bonny Sanderson says they have served more families and are stocking up like they haven’t before. Recently, a family drove a full hour to the nonprofit family farm to fill their trunk. “They can only afford a limited amount, so they came to us to get enough potatoes, cabbage and carrots to last them through the winter,” says Sanderson.

The last thing most business owners want to do is raise their prices, says Simon Gaudreault, vice president of national research at the Canadian Federation of Independent Business (CFIB). But when companies face higher energy and transportation costs, or are forced to import products by plane because ships don’t arrive fast enough, there isn’t much room for maneuver. According to an October survey, members of the small business association planned to raise prices by an average of 3.9 percent, a figure well above any level since the CFIB launched the monthly questionnaire in 2009. It is unknown if the economic recovery will continue. the chains will clear and the COVID is receding will definitely add to the upward pressure, he says.

Increasing consumer prices often occur alongside and partly driven by rising wages. That has been slow to happen this time, even amid the growing storm of labor shortages. Workers in Canada’s food and lodging sectors, many of them underprivileged Canadians, have received a pay raise of just 50 cents an hour on average since before the pandemic, according to Shahid. “However you look at it, low-income Canadians are the hardest hit by this crisis,” he says. The CFIB survey suggests that most companies plan to raise wages, not at a rate that matches headline inflation, but at one that could trigger additional price increases.

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Suffice it to say that an economic force that hits working-class families hardest runs the risk of provoking resentment over inequality. With necessities gobbling up their home budgets and real estate prices still skyrocketing, tenants have less money to pay down. “So what happens when two or three million millennial couples like that wake up one morning and say, ‘You know what? We can never afford a house, ‘”says Conservative MP Pierre Poilievre, who has been drumming on inflation as a major political issue.

The Trudeau government’s affordability efforts have largely focused on housing initiatives; When inflation became a problem in the election campaign, the Prime Minister said, “You will forgive me if I don’t think about monetary policy.” Join the Bank of Canada’s monetary policy makers, who are mandated to keep inflation around two percent. In the fall, the central bank halted its “quantitative easing” practice of pouring hundreds of billions into the financial system, a measure of economic support during a pandemic period that contributed to inflation. Banks and bond markets are expecting multiple interest rate hikes in 2022 to further moderate inflation, and Macklem has signaled that the increases could begin in April.

But this will make the loans more expensive for both businesses and residential mortgage holders. So, while early and aggressive interest rate hikes could break an inflation streak, they also risk stalling economic growth, just as countries try to recover from the impact of COVID-19. What’s more, governments are much more in debt than before the pandemic, increasing the risk of a fiscal crisis if rates rise too quickly. “The government has decided that the country will live on cheap debt,” says Poilievre. “But the problem with riding the cheap debt tiger is that you eventually get off the tiger and end up in its belly.”

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Of course, there is no certainty that Canadians are waiting for such dire scenarios. Global economic trends have a way of poking fun at predictions. But with inflation, we have to choose between disease and cure, and nothing in the past points to a pleasant outcome. Either we pay more in the future to borrow money and pay off our public debt, or we pay more to do just about anything else. Something is going to give in 2022, and perhaps in the next few years.

This article appears in print in the January 2022 issue of Maclean’s magazine with the headline, “Look Up. Address you. “Subscribe to the monthly print magazine here.

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