Statistics Canada has confirmed a 3.6% increase in the consumer price index as of May. This is the highest inflation rate since May 2011. It is also a marked increase on April’s 3.4%. This increase has been attributed to the contrast in pricing from last year when the pandemic first hit. Rising housing costs and challenges in supply chains were also seen as contributing factors. The market has been heating up as the high demand for single-family homes has been met by low supplies. The cost of construction materials has also risen.
Rising car prices have also driven inflation figures over the last month, up by 5% from the same period last year. This has partly been due to a shortage of semiconductor chips around the world. There has also been an increase in gasoline prices, up by 43% from last year. Furniture prices have also increased by about 9.8%, the highest rate seen since 1982.
These figures are predicted to keep rising through to fall as public health restrictions are eased, businesses reopen, and consumers seek to boost their spending. According to Canadian Imperial Bank of Commerce (CIBC) senior economist Royce Mendes, retail businesses that have been hard hit over the last year are likely to want to recover lost revenues by raising prices. He said this move could likely be afforded by consumers who have saved up more money due to the pandemic.
Bank of Canada governor, Tiff Macklem, has said the inflation being seen was a flash in the pan. Price increases are expected to slow down to below 2% once pandemic distortions have ended and the economy recovers. He added that the “base year effects” were the cause of this extreme due to comparison with prices from last year that fell when the pandemic started. He told a Senate committee that once the effects faded and with ongoing excess supply to the economy, inflation could be expected to lower.
BoC expects inflation figures to remain around the 3% mark for the summer, before gradually falling to the 2% bank target once comparisons are no longer being made with the lows of March and April 2020 figures.
CIBC’s Avery Shenfeld concurred, saying that the price levels a year ago were at rock bottom levels. He felt that inflation changes were not as adverse when compared with figures from the spring of 2019. He also supported the view that with consumers not having spent much of their income during pandemic times, they had stronger purchasing power now.