Inflation, which refers to the rate prices of general goods and services in an economy increase, is an important economic indicator. The rate of inflation can affect people’s everyday lives because when inflation is high, it generally leads to a higher cost of living.
In this article, we explore the current inflation rates in Canada as well as what causes higher inflation rates and how it affects the people in Canada. We have also included information on strategies the Canadian Government and the Bank of Canada use to try to manage and control the changes in inflation rates.
Inflation Statistics for Canadians
- Inflation rate in Canada was 3.3% in July 2023.
- The CPI rose 6.8% in 2022.
- Energy prices were up by 22.5% in 2022.
- The cost of food purchased from stores rose 9.8% in 2022.
- Cost of shelter was up 6.8% in 2022.
- Prices of durable goods rose by 6.2% in 2022.
- Cost of services rose by 5% with the prices of traveller accommodation rising by 29.3%.
- The rate of inflation fell from December 2022 to January 2023 in all provinces except New Brunswick where it was up by 0.2%.
- Globally, Switzerland and Japan had the lowest interest rates in January 2023.
- Inflation is the highest in Lebanon, Angola, and Sudan largely due to currency depreciation and political unrest.
What is Inflation?
The term inflation refers to the rate prices of goods and services rise within an economy. High inflation means a higher cost of living as the currency buys fewer goods and services than it did before.
Many factors contribute to inflation, which include a decreased supply of goods and services, increased demand for goods and services, higher production costs, actions by the central bank, and changes in government policies. When inflation is high, it can lead to economic instability and prices spiraling out of control. A moderate rate of inflation is considered a sign of a healthy economy.
Inflation Rate in Canada
In July 2023, the rate of inflation in Canada was 3.3%. This is condiseraby lower than in December 2022 when it was 6.3%. However, this is yet to make any difference in the daily lives of Canadians, especially as food prices continue to remain high.
Will the Rate of Inflation Continue to Fall in Canada?
The inflation rate fell from December 2022 to January 2023, but can Canadians expect the inflation rate to continue falling? According to Statista, the inflation rate can be expected to fall further this year and at least for the next few years to come. Their predicted data shows inflation falling to 4.2% this year and 2.4% by 2024.
What is the Consumer Price Index?
The Consumer Price Index (CPI) ise used to measure the average change in the prices paid by consumers for a basket of services and goods. It is a way to track how much the cost of living is changing for a typical household.
It is calculated by measuring the changes in the price of a range of commonly purchased goods and services such as clothing, food, housing, transportation, education, and healthcare. The CPI is used by policymakers, economists, and businesses to gauge economic health and inflation. It can also be used to adjust benefits and income for inflation.
The CPI in Canada
According to Statistics Canada, the CPI rose 6.8% in Canada in 2022, following a 3.4% and 0.7% rise in 2021 and 2020 respectively. The increase in 2022 was the largest increase since 1982 when the CPI rose by 10.9%.
Canadians have felt the impact of the rising CPI as the prices of basic goods and services have gone up, including transportation at 10.6%, food at 8.9%, and shelter at 6.9%. The annual average for goods was up 8.7% in 2022. Food purchased from stores was up 9.8% and gasoline was up 28.5%.
Prices for services increased on average by 5% in 2022. Costs associated with shelter rose, too. Replacement costs rose 9.5% and other accommodation expenses for homeowners rose 10%.
Year-on-year price growth accelerated every month in the first half of 2022 and reached a record high in June at 8.1%. However, it slowed down in the second half of 2022.
Energy Prices in Canada
Energy prices were up 22.5% in Canada according to Statistics Canada and this made the biggest contribution to the annual average inflation in 2022. Prices rose due to Russia’s invasion of Ukraine as well as the higher demand following the lifting of COVID-19 restrictions.
Fuel oil and other fuel prices rose by 59.6% based on annual averages and the price of gasoline went up by 28.5%. The higher fuel oil prices were felt most acutely in Atlantic Canada where it is more common to use fuel oil for heating.
Food Prices in Canada
The cost of food purchased from stores went up by 9.8% in 2022, following a 2.2% increase in 2021. Prices rose in every food category in Canada, except for canned salmon which went down by 1.4%.
The prices of cereal products rose by 13.6%, bakery products by 11.5%, fresh fruit by 10.4%, food preparations by 10.1%, processed meat by 9.6%, dairy products by 8.6%, and fresh vegetables by 8.3%.
There are multiple factors that led to higher food prices. These include supply chain disruptions, higher input costs, extreme weather and Russia’s invasion of Ukraine. The war in Ukraine has had an especially big impact on the prices of wheat with both countries being among the top ten wheat producers in the world.
Cost of Shelter in Canada
The cost of shelter rose 6.9% in 2022 which was driven by higher replacement costs at 9.5%, which relates to the price of new homes. Other accommodation expenses, including commission on sales of real estate, rose by 10%. The Mortgage Interest Cost Index in Canada rose by 2.6% in 2022.
Nationally, the prices for rental accommodation increased by 4.6% in 2022, having risen by 1.6% in 2021. The rise in rental accommodation costs has been linked to the easing of restrictions and students returning to in-person teaching.
Cost of Durable Goods in Canada
The cost of durable goods such as cars, furniture, and household appliances has remained high in Canada. In 2022, the average price of durable goods increased by 6.2%. The cost of furniture was up by 11.6%, the cost of household appliances by 9%, and passenger vehicles by 7.2%. However, the indexes began to slow towards the end of 2022 due to lower demand, lower shipping costs, and easing of supply chain constraints.
Cost of Services in Canada
The prices for services rose by 5% in 2022 following the reopening of the economy. Prices for accommodation for travellers increased by 29.3% in 2022, compared to just 2.2% in 2021. Increases were the highest in Ontario at 42.7% and Nova Scotia at 34.6%. Food prices in restaurants rose on average by 6.7%.
Inflation in Canadian Provinces
The inflation rates across Canadian provinces reflect the change in the national rate from December 2022 to January 2023. According to data published by the Toronto Star, the rate of inflation fell in all other provinces except New Brunswick where it was 0.2% higher in January than in December (from 6.3% in December to 6.5% in January).
Manitoba saw the biggest change. The inflation in the province changed from 8% in December 2022 to 6.9% in January 2023. The second biggest change was seen in Alberta where the rate fell from 6% in December to 5% in January.
Why Has the Rate of Inflation Been High in Canada?
There are a range of reasons why inflation in Canada has been high in recent times.
- Disruptions to supply chains following the COVID-19 pandemic have led to shortages of raw materials as well as higher production costs for companies.
- Demand has increased following the easing of restrictions and reopening of the economy. The increased demand has been especially high for services and goods that were restricted during the pandemic lockdowns.
- Many industries are facing labour shortages, which has led to increases in wages as employers try to compete for workers.
- Monetary and fiscal policies implemented by the Canadian government and the Bank of Canada. These have led to increased money supply and lower interest rates, which can contribute to higher rates of inflation.
What is the Bank of Canada Doing About Inflation?
The Bank of Canada (BoC) has implemented a monetary policy with the aim to target the overnight interest rate and support economic recovery. It may also raise interest rates if inflationary pressures continue.
The BoC regularly updates its forecasts for the economy, which it uses to inform monetary policies. If the forecast indicates that inflation is most likely to remain high, the bank may adjust its policy. The BoC will also promote financial stability by monitoring risks in the financial system and taking actions to mitigate them when necessary.
What is the Government of Canada Doing About Inflation?
Similarly to the BoC, there are several things the Government of Canada can do to try to manage inflation. The government can implement fiscal policies, such as support measures during COVID-19, to support individuals and businesses. Often these measures are used to stimulate economic activity. However, they can lead to an increased money supply, which may result in higher inflation.
The government can take measures to manage the supply chains, for example by diversifying them, investing in domestic production, and improving the transportation infrastructure. They can also implement regulations to cap fees, for example, what food delivery companies can charge, to keep prices more affordable for consumers.
Since the state of the world economy will have an impact on Canada’s economy and inflation rate, the government works with other countries to coordinate global responses to economic challenges and inflation.
Which Country Has the Lowest Inflation?
Based on inflation rates from January 2023, Switzerland has one of the lowest rates of inflation in the world. The inflation rate was approximately 0.7% in January 2023. In Japan, it was around 0.9% and in the euro area 2.2%.
Which Countries Have the Highest Inflation?
According to data from the International Monetary Fund, countries with the highest inflation rates include Lebanon, Angola, and Sudan. In Lebanon, the estimated rate of inflation was approximately 56% in 2021 driven by political instability, currency depreciation, and economic crisis.
In Angola, the rate was around 45% due to the impact of COVID-19, high fiscal deficits, and depreciation of the currency. In Sudan, inflation has been high because of political instability and long-lasting sanctions by the US.
Inflation has been high in Canada in recent years, especially following the COVID-19 pandemic. The cost of goods and services has been driven higher by various factors including the disruptions to supply chains caused by the pandemic, extreme weather, and the war in Ukraine.
The rate of inflation in Canada fell from December 2022 to January 2023 and it is predicted that the rate of inflation will continue to fall. However, it may take a while before this is reflected in the price of goods and services to the consumer.
Frequently Asked Questions
The rate of inflation in Canada was 3.3% in July 2023, which is significantly lower than the rate of inflation in December 2022.
Food prices continue to be high in Canada and the CPI for food purchased in shops was up by 9.8% in 2022.
The inflation rate is not expected to rise in 2023. In fact, it is expected that it will continue to fall in 2023 and in 2024.