The cost of living jumped in February at a rate not seen in over 30 years on the back of rising prices for gasoline and groceries, which economists warn are set to become more expensive and push inflation rates even higher.
The annual rate of inflation climbed to 5.7 per cent in February, Statistics Canada said Thursday, the highest level since August 1991 and the second straight month it’s been over five per cent.
Tu Nguyen, an economist with accounting firm RSM Canada, said inflation is expected to be closer to six per cent in March and could even reach seven per cent for the first time since the early 1980s.
“Just be ready for inflation this year to stay high,” she said. “It’s going to be difficult.”
Helping to drive the increase in February were higher gasoline prices, up 32.3 per cent compared with February 2021 and up 6.9 per cent from January. The annual inflation rate excluding gas prices would have been 4.7 per cent in February.
Grocery store prices were up 7.4 per cent for the largest yearly increase since May 2009, pushed higher by rising fuel costs that are being passed on to shoppers.
Shelter costs, which include prices for homes and rental units, rose at their fastest pace since August 1983. BMO chief economist Douglas Porter said the 4.2 per cent year-over-year increase for rents was a byproduct of the raging housing market where prices continue to rise.
Although groceries and gasoline grabbed headlines, RBC economist Rannella Billy-Ochieng’noted that prices for two-thirds of the basket of goods used to calculate inflation rose faster than the central bank’s 2-per-cent target in February.
The 5.7 per cent reading for inflation follows the jobs report last week by Statistics Canada that found average hourly wages in February rose 3.1 per cent compared with one year earlier.
“If it feels like everything is getting more expensive, it’s because it is,” said Royce Mendes, managing director and head of macro strategy at Desjardins.
Prices for some of the key drivers of inflation in February are likely to go higher this month, especially for gasoline as global oil prices have risen in line with uncertainty around Russia’s unprovoked invasion of Ukraine. Gasoline prices on Tuesday were 11 per cent higher than at the end of February, Mendes said.
Two weeks ago, the Bank of Canada raised its key policy rate to 0.5 per cent, marking the first hike since cutting rates two years ago, and warned of more hikes to come to rein in inflation and bring it back to the central bank’s target zone of between one and three per cent. Including last month, inflation has spent 11 consecutive months above that zone.
The average of the three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 3.5 per cent for February, pointing to more pervasive and broad-based pressure on prices that has left the central bank uneasy about inflation.
The February average was the highest rate recorded since June 1991.
Even if the global drivers of inflation start to cool, domestic pressures may ramp up in their place. Mendes said further easing of public health restrictions could see increases in prices for services.
“Even as the headline inflation rate is likely to decelerate, beginning in the second quarter and over the course of the year, it’s likely the Bank of Canada will continue increasing interest rates to fight off those underlying, homegrown inflationary pressures,” he said.
Pressure is building on the federal Liberal government to not add fuel to the inflationary fire with its budget expected in the coming weeks. On Thursday, the Conservatives called on the government to chart a path to balance the budget, while NDP Leader Jagmeet Singh used an event in Brampton, Ont., to call for a tax on corporate profits.
This report by The Canadian Press was first published March 16, 2022.
In this double exposure photograph, a sign displays the price of a litre of regular grade gasoline as people fuel up their vehicles at an Esso gas station, in Vancouver, on Tuesday, March 8, 2022. THE CANADIAN PRESS/Darryl Dyck