As Canada Battles Its Worst Inflation in 30 Years, Central Bank Says It May Increase Policy Rates

Canada is battling its highest inflation rate in the past 30 years, hitting people on all fronts and forcing the country's central bank to consider raising the interest rate.

Canada's inflation rate has risen to its highest since 1991 as the price of everything – from gasoline to groceries to shelter – has started to bite consumers. The government data showed that the inflation rate has increased to 5.7 percent, beating the expectations of the Bank of Canada.

A recent survey by the Bank showed Canadians were increasingly worried that the wage growth would not be able to beat the shooting inflation rate.

Statistics Canada, a government agency, stated, “In February, Canadian consumer prices increased 5.7 percent year over year, up from a 5.1 percent gain in January. This was the largest gain since August 1991 (+6.0 percent). February marked the second consecutive month where headline inflation exceeded 5 percent.”

A separate survey of businesses revealed that companies too expect inflation to remain high over the next few years. They anticipate increased labour and input costs, which the companies intend to pass on to the customers.

Statistics Canada added that gasoline prices had jumped more than 32 percent since February 2021 and groceries prices have risen 7.4 percent. Shelter costs have jumped 6.6 percent, the biggest increase since 1983.

The rising energy prices are a major factor for the inflation shooting up, say experts.

The ongoing crisis in Ukraine has pushed energy prices over the past two months, at a time when the world was recovering from the impact of the COVID-19 pandemic.

Besides, Russia and Ukraine are the two biggest suppliers of wheat – almost 30 percent – and this conflict has cast the wheat crop from these two countries into doubt. Canada itself is a wheat exporter but drought conditions across the cultivation region last year meant that it produced less crop than normal.

The rising inflation has remained above the Bank of Canada's 1 percent to 3 percent control range for the 11th consecutive month. And this is building pressure on the central bank to raise interest rates. It already raised the policy rates in early March for the first time in more than three years. The bank has said it is prepared to take more aggressive measures to tame inflation.