Canadian Inflation Pressure Is Broadening Across Categories As It Hits 3 Decade High

Canadian inflation didn’t hear your transitory call apparently — it’s widening to other categories. Statistics Canada (Stat Can) data shows the consumer price index (CPI) soared in January. The annual growth rate reached 5.1% for the month, advancing from 4.8% a month before. Canada’s inflation hasn’t grown this fast since September 1991, three decades ago. To make things worse, high inflation is being felt across categories, making it harder to slow down.

Canadian Inflation Is Spreading To More Categories

A new BMO analysis looks at how wide the impact of inflation has become. Only a few weeks ago, people were under the impression inflation was temporary. Few believe that now. “Not that you need another way to look at inflation, along with the host of measures used by the Bank of Canada, but here’s one that highlights how widespread price pressures have become,” wrote BMO senior economist Robert Kavcic.    

He looked at 18 categories of CPI and found most are much higher than target. “Of the 18 major CPI categories, 83% saw annual inflation rates above the 2% mark in January. That’s the highest share in 30 years,” he says. 

Canada Has Seen 4 In 5 Inflation Components Rise Above Target

For those unaware, the BoC annual growth target for CPI is only 2% and has been for some time. The goal is to keep it around that mark, but 4 in 5 CPI subcomponents are growing faster. “It’s also worth noting that almost two-thirds of categories are above the 3% mark,” he called out. 

The 2% annual growth rate is already an issue to breach. Above 3%, the CPI component has breached the upper tolerance band. While the BoC is unlikely to mention it out loud, this has to have them nervous about their call.

All Canadian Provinces Have Seen Over 4% Growth

Inflation is hitting some provinces worse than others. Prince Edward Island (+7.1%), Ontario (+5.7%), and Manitoba (+5.5%) have seen the largest annual growth. All three of these markets advanced at a faster rate than the previous month. “… every province in Canada saw inflation above 4%,” observes Kavcic.  

The BoC has vocally reinforced its belief that high prices are transitory. Governor Macklem even reiterated he sees supply chains behind high prices. It’s not a popular opinion these days.

The US Federal Reserve has openly said it’s time to kill the use of the word transitory. Instead, they’ve begun referring to the recent surge as an inflation shock. Transitory inflation resolves on its own, but an inflationary shock requires policy changes.  

BMO also appears to be skeptical of the idea that inflation is transitory. “All this to say that inflation pressure is widespread across categories and regions, not driven by any particular special factor that will just go away…,” Kavcic ends his note. Yes, with the trailing ellipses et. al.