Food and gas prices growth in Canada is already equivalent to three central bank’s rate increases

According to an economist from the National Bank of Canada, inflation has shown a larger-than-expected increase and it will keep affecting household balance sheets in the nearest future.

Today, inflation in Canada is at its highest level in more than 30 years, as the annual number reaches 5.7%. It’s particularly notable in the produce aisle in supermarkets, and the inflation is expected to go even higher in April, economists believe. The main reason for such a gain is a 32.3% increase in energy prices caused by Russia’s invasion of Ukraine.

The upward tendency has significant influence on the Bank of Canada’s next rate decision. Yesterday, BMO Economics called for an additional rate increase from the BoC this year to 1.50% aimed at offsetting the growing macroeconomic pressures.

Matthieu Arseneau, deputy chief economist at the National Bank, says the impact of rising food and energy prices is already equivalent to three 0.25% rate hikes from the central bank.

Such a step may lead to an increase of debt servicing costs to as much as $3.5 billion. In addition to it, Arseneau warns that weaker purchasing power would cause consumption decline.

“At the same time, consumers have been quickly losing their purchasing power since the beginning of 2022, especially because of their energy bills,” – Arseneau noted. “According to our estimate, the impact that food and gasoline prices growth has on Canadian households in the first half of this year may be equivalent to the influence of a 0.78% rate increase by the BoC on debt service costs.”


Leave a Reply

Your email address will not be published.