You have probably noticed that prices for just about everything have gone up in the past several months. Canadian inflation has climbed to the highest rate in two decades, and consumers are paying more for goods, with wages failing to keep pace. Here are a few things you should know about the recent rise in inflation:
- Inflation reached a new record—In October, the consumer price index rose 4.7%, the highest number since 2003. Inflation has not exceeded this level in the three decades since the Bank of Canada started targeting inflation in 1991.
- Inflation has risen for several months—The Bank of Canada’s most recent inflation reports mark the seventh month where inflation has risen about 3%. Concerns that price pressures are becoming more persistent are growing.
- Interest rates may rise in the near future—With the rise in inflation, the Bank of Canada indicated they may start raising interest rates early in 2022. This could hamper the incomplete pandemic-related economic recovery.
- Rising inflation could be temporary—Central bank officials insist inflation is rising because of temporary factors linked to supply constraints and energy prices. But if inflation persists, inflationary pressures could become the new expectation.
- A wage-price spiral could be possible—If this rate of inflation continues, a wage-price spiral may occur that could be difficult to stop, especially if wages do not rise at a similar rate.
- Products most affected by inflation—Rises in prices for energy, food, and shelter have led the gains in inflation. The global chip shortage has also led to a sharp increase in the cost of new vehicles.