OTTAWA | The general rise in prices worries the Bank of Canada, at a time when the invasion of Ukraine is a major source of uncertainty and volatility for the world economy.
• Read also: The Bank of Canada raises its key rate
• Read also: 4.6% growth for GDP in Canada in 2021
• Read also: Tough year for our personal finances
“This generalization of price pressures is extremely concerning,” said central bank governor Tiff Macklem.
Even before Vladimir Putin launched the assault on Europe, grocery prices in Canada had risen by 6.5% in January, and inflation in the goods sector was at 7.2% , a high since January 1983.
Towards more than 6% inflation
Although we trade very little with Russia, which makes us relatively immune to the repercussions of the economic sanctions imposed on that country, Tiff Macklem warns that the surge in oil prices caused by the war will boost inflation.
If the barrel remains at $110, we should expect an increase of one percentage point in inflation, which would take it from 5.1% to 6.1%, estimates the governor.
Russia and Ukraine are also major producers of wheat and corn, cereals that are the basis of the human and animal food chain. Without the contribution of these two countries to world markets, the prices of all basic food products will suffer.
Affected supply
Governor Macklem adds that the war in Ukraine might also “impact global supply chains”, as they are only just beginning to show positive signs following two years of disruption caused by the pandemic.
Despite this uncertainty, the bank points out that the Canadian economy is running at full speed.
“The economic recovery in the context of the pandemic has been impressive,” Macklem said.
Vigorous growth
Employment, including for young people and for women, is back to pre-pandemic levels. GDP growth was strong in the fourth quarter of 2021, at 6.7%, and growth in the first quarter of 2022 “looks stronger than projected,” the governor said.
This is what motivated the central bank to raise the key rate on Wednesday. The objective is to keep inflation under control by curbing demand.
So far, Mr. Macklem has maintained that inflation is more persistent than expected, but temporary. It remains to be seen how the war in Europe will change the situation.
