Inflation became widespread even before the impact of the invasion of Ukraine on the price of energy and raw materials. After rising 5.1% in January, consumer prices continued to climb last month, rising 5.7% year-on-year. This is the largest increase since the 6% in August 1991, says Statistics Canada. And February is the second month in a row in which headline inflation has risen above 5%. Same observation in Quebec, where the surge in prices reached 5.4% last month, after 5.1% in January.
Even when excluding the volatile components of energy and food, the consumer price index (CPI) was 3.9% higher than February 2021, while the three main measures of l he inflation used by the Bank of Canada posted an average increase of 3.5% from one year to the next. All of this is a far cry from the central bank’s CPI target of 2%. Inflation as measured by this index thus remained above the target range of 1-3% for an 11and consecutive month.
“Energy prices in Canada were again a major driver of the overall increase in February, but that didn’t even include the recent surge in global energy prices in response to the invasion of the Ukraine by Russia. As of yesterday, gas prices were about 11% higher than they were at the end of February,” said Royce Mendes, Managing Director and Head of Macroeconomic Strategy at Desjardins Group. In fact, inflation was widespread in February, with nearly two-thirds of the components of the CPI basket registering increases of more than 3%.
Consumers paid more for almost everything, with gasoline and groceries topping the list of big food sources for inflation. Added to this was the upswing in housing costs, which in February recorded the largest year-over-year increase since August 1983.
Canadian motorists paid 32.3% more at the pump compared to February 2021. “Monthly gasoline prices rose 6.9% amid geopolitical strife in Eastern Europe and the Middle East, as uncertainties about global oil supply put upward pressure on prices,” the agency said.
Groceries cost even more
For their part, prices for food purchased from stores rose at an even higher rate in February than in January, a year-on-year increase of 7.4% versus 6.5% respectively. “This is the most marked annual increase since May 2009,” notes Statistics Canada, which takes as an explanation the increase in input prices and transportation costs. In the grocery basket, “the year-over-year increase in meat prices in February (+11.7%), including prices for beef (+16.8%) and chicken (+10.4%), was higher than that recorded in January (+10.1%)”.
Dairy and egg prices followed, surging 6.9% in February, after posting a 4.5% increase in January. “Farm prices received by producers for milk increased on 1er February 2022 in order to partially offset the increase in production costs, ”recalls the federal agency. Small consolation, the year-over-year growth of 3.7% in the price of bread was lower than the 7.5% recorded in January.
Among the other major items, housing costs caught the eye with increases of 6.2% in the cost of owned accommodation and 4.2% in rental accommodation. In the first case, the pressure remained strong on the homeowner’s replacement cost (+13.2%), which is linked to the price of new housing and other expenditure for owned accommodation (+14.3%) . This pressure was barely alleviated by the 6% drop in the cost of mortgage interest.
Finally, Statistics Canada accepts the explanation of the Canada Mortgage and Housing Corporation according to which “the improvement in economic and demographic conditions over the previous year, including the recovery in employment among young people and the revival of international migration activity to Canada, supported demand for rental housing, which contributed in part to the increase in rental prices (+4.2%) year-over-year in February “. All of this was before the outbreak of Vladimir Putin’s war on Ukraine inflamed the prices of energy, agricultural products and strategic metals. Before, too, the appearance of signs of a possible new wave of COVID-19 likely to affect already disrupted supply chains – as the recent closures in China to contain a new spread of the virus can testify. And with a labor market now operating at full employment to fuel internal inflation. Lots of work ahead for the Bank of Canada.
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