Canada’s inflation rate hit 5.1% in January amid high gasoline and food prices, according to data released by Statistics Canada on Wednesday.
Households continued to feel the impact of rising prices for essential items, with food up by 5.7%, shelter rising by 6.2% and gasoline increasing by 31.7% on a year-over-year basis.
Even core inflation, which excludes volatile categories like energy and food, also surged.
This signals broad price increases across categories, which would make inflation much more difficult to bring down than if the increases were concentrated in a few categories as they had been for the past year.
Shelter costs played a major role in the high inflation, rising at the fastest pace since 1990. Home prices went up by 6.1%, a steady rise that has been accelerating since last summer. At the same time, rent prices rose by 3.2%. Increases in prices of both homes and rentals, while vacancy rates remain low across the nation, reflect the continuing housing shortage amid high demand.
While interest rate hikes by the Bank of Canada are expected to cool the market, those increases will not solve the housing shortage.
At the same time, utilities surged by an astonishing 12%, with households having higher heating bills this winter than ever.
Gasoline prices stay elevated because of geopolitical conflict in Libya and Kazakhstan. If a Russian invasion of Ukraine were to occur, we can expect gas prices to jump another 10% to 20%.
Inflation in February might be even higher because of the convoy protests. Blockades at some of the busiest border crossings forced commercial vehicles to detour to other crossings, some hundreds of kilometers away.
For example, commercial vehicles normally passing through Coutts, Alberta have been rerouting through North Portal and Regway, Saskatchewan. Vehicles normally passing through the Ambassador Bridge between Windsor, Ontario, and Detroit had to reroute through Niagara Falls.
The detour translates into more fuel and time spent on the road as well as overall higher transportation costs. It also intensifies shortages of critical items like food and auto parts. Consumers will see higher prices, more empty supermarket shelves, and, in a few months, fewer new cars in dealerships.
When households are spending most of their paychecks on essentials such as food, housing and gas, they have less to spend on recreation, travel and other sectors of the economy. In the end, the higher costs threaten to hurt economic growth.
