The annual pace of inflation climbed to a 30-year-high in December, well ahead of expectations presented to the prime minister in early 2021, according to documents obtained by Global News.
Statistics Canada said Wednesday the consumer price index in December was up 4.8 per cent compared with a year ago, its highest point since 1991.
The reading compared with a year-over-year increase of 4.7 per cent in November.
Driving the faster pace of price growth in December were higher year-over-year prices for food, passenger vehicles and housing.
Statistics Canada says that excluding gasoline prices from its calculations, the consumer price index would have been up year-over-year in December by four per cent.
Prices at the gas pumps were up 33.3 per cent year-over-year in December, compared with a 43.6 per cent annual increase in November, as tightening of public health restrictions related to the Omicron variant weighed on demand.
Memo to Trudeau underestimated inflation
December marked nine months in a row that headline inflation has come in above the Bank of Canada’s target zone of between one and three per cent.
The country hasn’t seen a streak that long since before the central bank began targeting inflation at two per cent in the midpoint of its comfort range.
The increases are also at odds with guidance given to the prime minister in early 2021 about the pandemic’s impact on inflation.
Prime Minister Justin Trudeau was told that “most forecasters” don’t expect inflation to accelerate past the Bank of Canada’s three per cent benchmark over the next few years, according to a February 2021 memo obtained by Global News through the federal Access to Information law.
The PM’s briefing did project that inflation would pick up as the economy recovered from the pandemic, but that it would then “moderate” amid factors such as low economic growth forecasts and technological change.
“The inflation challenge that the world is facing right now is a global challenge linked to, obviously this pandemic, but also linked to significant disruptions to supply chains around the world,” Trudeau told reporters in an update on Wednesday.
Global supply chain impacts were flagged as a possible cause of higher prices in the February memo. The success of Canada’s vaccine rollout was cited as a key factor in when the country’s economy recovery might begin in earnest, while the emergence of new, more contagious variants was pegged as a possible drag on inflation.
The memo cited the Bank of Canada’s 2020-21 Business Outlook Survey, which saw private sector firms project inflation to be on the lower-end of the central bank’s one-to-three per cent range.
Conversely, this year’s edition of the business outlook survey showed inflation is expected to be above the three per cent mark in years to come.
Inflation could rise into the spring: CIBC
CIBC senior economist Andrew Grantham says inflation might well continue to rise in the first quarter of 2022, which could cause some concern within the Bank of Canada.
He wrote in a note Wednesday that rising energy prices, supply chain issues affecting food costs and jumps in house prices suggest headline inflation could “grind a little higher still” before cooling around spring time.
The Bank of Canada has said that it would act to stop runaway inflation, and is scheduled to make a rate announcement next week.
The average of the three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 2.93 per cent for December, up from the 2.73 per cent reported in November.
The average was last that high in September 1991.
Tu Nguyen, economist with accounting firm RSM Canada, wrote Wednesday that the Jan. 15 vaccine mandate for cross-border truckers is likely to worsen supply chain concerns and keep pressure high on food prices through the winter months.
She added that rising fuel and food prices will also “disproportionately” hurt low-income households, as their wages are less likely to keep pace with inflation and their jobs are less likely to be remote.
— With files from Global News’ David Akin and the Canadian Press
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