| 25 June 2024, Tuesday |

‘Perfect storm’ swirls as Canadians face hot inflation, rising rates

Huge metal boxes of donated food are stacked high in an Ottawa warehouse as volunteers sift canned goods, pasta, and other delicacies to be given to pantries throughout the Canadian city.

As more Canadians struggle to make ends meet due to skyrocketing grocery, petrol, and rent prices as well as rapidly rising borrowing expenses, demand at the Ottawa Food Bank has increased 33% from pre-COVID-19 pandemic levels. Visits have also increased.

Canada’s headline inflation rate has eased to 6.9% from a peak of 8.1%, but food costs are still accelerating and underlying price pressures remain sticky.

At the same time, the Bank of Canada (BoC) has hiked interest rates by 350-basis points in just seven months, one of its sharpest tightening campaigns ever, to try to force inflation back to its 2% target.

The result is Canadian consumers and small businesses are being squeezed from both sides, prompting politicians, unions and even some economists to implore the central bank to slow its pace of tightening.

The bank this week signaled its tightening campaign was nearing its peak, but made clear it was not done yet, as it hiked rates by 50-bps to a fresh 14-year high.

In a television interview after the decision, BoC Governor Tiff Macklem said restoring price stability was not easy, but rampant inflation would be worse.

“I understand a lot of Canadians are in debt and interest rate increases will put more stress on them. It is something that we are watching closely,” he told Radio-Canada.

  • Reuters