Is pandemic reopening to blame for soaring inflation and rate hikes?
inflation soaring in Canada

Is pandemic reopening to blame for soaring inflation and rate hikes?

Over recent months, inflation in Canada has soared as it has in countries across the world. In May, the consumer price index in Canada reached its highest level in nearly four decades, as it hit 7.7%. Economists are now predicting that the figure for June will be at least 8%, with many blaming the impact of reopening following the global pandemic.

Statistics Canada will release inflation data later this week. The numbers could be another shock for a nation digesting the impact of an entire percentage point rate hike from the Bank of Canada last week.

Many have been facing financial struggles worldwide due to soaring prices for everything from food and energy to gas and household goods. This, coupled with rate hikes imposed by central banks, has taken its toll on the finances of average households. It could be down to what some economists are calling the ‘reopening effect.’

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inflation soaring

The easing of restrictions

During the height of the pandemic, strict measures and lockdowns meant demand for products and services went through the floor. However, the restrictions are now lifted, and demand has rocketed in the other direction.

Derek Holt, head of capital markets economics at Scotiabank, said, “Restrictions coming off the pandemic fell even further into June and that unleashed a whole wave of activity _ more people dining, more people flying, more people getting out on a boat.”

Holt predicted that the inflation figure for June could be as high as 8.9% due to this ‘reopening effect.’  

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While things may be bad at the moment, there is still more to come based on predictions and figures from various industry experts. Several food suppliers have warned retailers to prepare themselves for further price hikes, which almost certainly means costs will be passed onto consumers.

inflation in Canada

The Royal Bank of Canada (RBC) also published a report late last week advising that the acceleration seen in June will likely be down to the impact of soaring food and energy prices.

In the report, the RBC wrote, “Oil prices rose another 4.8 percent from May and consumer food prices have been surging in part due to higher commodity prices and acute supply chain disruptions.”

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A range of contributory factors

According to officials from the RBC, soaring inflation and subsequent interest hikes result from a range of factors. This includes global issues such as the Russian war against Ukraine, supply chain problems, and the soaring demand that has resulted from the pandemic reopening.

There are also domestic issues impacting inflation in Canada, including what the central bank described as an ‘overheated’ economy where businesses are struggling to find employees and demand for their products and services continues to be strong.