Here’s how Canada compares to other countries when it comes to high inflation

Nojoud Al Mallees, The Canadian Press

Published Saturday, November 19, 2022 at 6:34 AM EST

Decades of high inflation has Canadians concerned about the rising cost of living, but as bleak as things may seem, Canada appears to be doing better than many other major economies.

The national inflation rate is still lower than that of the United States, the European Union and the United Kingdom, where annual inflation rose to an eye-watering 11.1 percent in October.

Price pressures in Canada are beginning to ease, gas prices fell from record highs and annual inflation held steady at 6.9 percent in October despite a rebound at the pump.

Yet, despite glimmers of hope that the worst is behind Canadians, many have seen their purchasing power eroded as wage growth outstrips inflation.

Inflation in Canada hit its highest level since 1981 in the summer, with rates rising steadily since the lifting of COVID-19 restrictions. Prices were 8.1 percent higher in June than twelve months previously.

And even as federal liberals respond to the political challenge of inflation by announcing additional aid for Canadians, opposition politicians seized the issue as an opportunity to argue that the government is failing on the domestic cost of living front.

But Canada has a lot of company in the fight against high inflation.

A slew of global challenges, from the Russian invasion of Ukraine to struggling supply chains, have seen prices rise rapidly around the world.

Pandemic support programs and low interest rates also made it easier for people to spend money as countries reopened, boosting demand in economies that were already struggling to provide goods and services.

With central banks acting in unison to contain inflation, Canada’s extraordinarily high inflation rate is still lower than that of its major allies.

BMO chief economist Douglas Porter says it is difficult to make comparisons between countries because of differences in how inflation is calculated.

However, it is fair to say that Canada is relatively better off, he said in an interview.

“Even with that mild warning label, I still think the prevailing narrative is that Canada generally has lower inflation rates than most major economies,” Porter said.

The economist noted that Switzerland, Japan and China are the main outliers of that trend, with inflation rates of two to three percent.

And just like in Canada, inflation seems to be slowing in the US. The latest inflation report from the US Bureau of Labor Statistics shows that inflation slowed to 7.7 percent in October, a positive surprise to forecasters.

Porter attributes the increased inflationary pressures south of the border to the US economy reopening earlier in the pandemic and the federal government issuing more aggressive fiscal stimulus in response to COVID-19.

On the other side of the Atlantic, dependence on Russian energy has led to even greater pressure.

The UK, which is experiencing its highest inflation rate in 41 years, is not alone in double digits. Prices in the European Union rose by 10.6 percent in October compared to the previous year.

After Europe hit Russia with economic sanctions following its invasion of Ukraine, the country cut off supplies of natural gas to Europe, raising cost-of-living fears ahead of the winter months.

“That’s the main reason inflation in Europe is so much higher than here in North America,” Porter said.

Central banks worldwide are trying to quell the high inflation with interest rate hikes that are intended to slow down economic growth.

And while the Bank of Canada has been criticized for waiting too long to raise interest rates, Porter says it has moved faster and more aggressively than other central banks.

“I think the Bank of Canada got it earlier than other central banks. And that’s one of the reasons why our inflation rate is a bit lower,” he said.

Since March, Canada’s central bank has hiked its key interest rate six times in a row, one of the fastest monetary tightening cycles in its history. The key interest rate rose from 0.25 percent to 3.75 percent, and Governor Tiff Macklem has warned Canadians should expect interest rates to rise further.

The US Federal Reserve also started raising interest rates at a similar pace in March, with the upper limit now set at 4 percent.

The Bank of England raised its key interest rate by three-quarters of a percentage point at its latest decision-making meeting, but its key rate is still three percent behind.

The European Central Bank was the slowest, raising its policy rate to 1.5 percent last month.

Porter said faster action on the part of the Bank of Canada and the US Federal Reserve could lead to inflation in North America falling faster than other regions.

But he warned that the road ahead will not be easy.

“I think we should all brace ourselves for a longer battle to control inflation.”

This report from The Canadian Press was first published on November 19, 2022.

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