The worst inflation in the last 40 years will leave its mark

Official figures confirm what we already suspected: inflation for the whole of 2022 is the highest level in the last 40 years. The good news is that the worst is behind us in terms of price increases.

• Also read: Inflation eases slightly in Canada

• Also read: Half of Canadians are pessimistic about their pay

Statistics Canada announced Tuesday that inflation will eventually reach 6.8% in Canada and 6.7% in Quebec in 2022. You have to go back to 1982 at 10.9% to find worse.

The main contributors to inflation in 2022 were energy prices, which increased by 22.5%. Even if you exclude them from the calculation, you get a rate of 5.7% per year.

The Bank of Canada aims to keep inflation in the 1-3% target range. Only one of the eight components of the Consumer Price Index (CPI) did not exceed 3% in the last 12 months, namely clothing and footwear (1.4%).

For example, the price of transport increased by 10.6%, the price of food by 8.9%, and the price of housing by 6.9%.

At the grocery store and dealer, these increases are accompanied by new prices that are now becoming the norm.

“No one is predicting negative inflation in the next few months or years. The prices we’re seeing right now are the new benchmark,” said Desjardins Chief Economist Benoit Durocher.

End the year at 2%

David Dupuis, a professor at the University of Sherbrooke and a former economist at the Bank of Canada, believes that no one expects inflation to break records in 2023 either, because at 6.8% for 2022, it is already “super high.”

The reference points for measuring the cost of living increase this year will be the record increases of 2022.

“Over time, we will compare ourselves to higher prices, which will lower the inflation rate,” explains Benoit Durocher.

So if we start 2023 with inflation “around 6%”, we should end the year at “around 2%”.

The bite of interest rate hikes

In the coming months, adds David Dupuis of the University of Sherbrooke, the full impact of the rate hike will be felt.

“We can already see this with the decline in real estate.

The first rate hike by the Bank of Canada happened last March and “it is often said that it takes 18 to 24 months to feel the full effects.”

Therefore, it takes us until the fall of 2023 to see the “real bite” of key rate hikes, rising from 0.25% to 4.25% in 2022.

“The impact will be great. There is a way to see where the bank is already doing too much,” said the economist.

In short, the remedy is in place and it remains to be seen whether it will succeed in curing the scourge of high inflation.

“We have our finger on the pulse of the patient who is not so bad,” David Dupuis says of the Canadian economy.

5 sectors where 2022 is extremely difficult

Price increases in 2022 are widespread. Here are 5 sectors where it’s especially salty.

essence +28.5%*

Last spring, the average gas price in Quebec rose well above $2.  The highest price was $2.26.  CAA-Quebec says prices have come down since then, but retail margins remain unusually high.

Photo archive, Pierre-Paul Poulin

Last spring, the average gas price in Quebec rose well above $2. The highest price was $2.26. CAA-Quebec says prices have come down since then, but retail margins remain unusually high.

The increase in the price of gasoline for 2022 was 28.5%. The peak was reached in June, when a regular liter sold for $2.26 in Quebec.

“Gas stations even had to increase the automated $100 limit at the pump because no one could fill up their car with it anymore,” recalls Nicolas Ryan of CAA-Quebec. Quebecers said they can take solace in the fact that they ended the year with the lowest prices in 12 months. Again, retail margins are abnormally high, CAA-Quebec reminds us. “One can only hope that we don’t see any more margins at 25 cents a litre,” Ryan said.

Durable goods +6.2%*

Prices of durable goods increased by 6.2% in 2022 compared to the previous year. Prices of furniture and household appliances increased by 11.6% and 9%, respectively.

Richard Darveau, president of the Hardware and Construction Materials Association of Quebec (AQMAT), says disruptions in the supply chain explain these inflationary increases. According to Mr. Darveau, according to his sector, “50% of the materials come from Asian countries”. Factories are running slower in China due to difficulties in controlling COVID-19. »

Another supply bottleneck is demographic decline in North America. “We haven’t invested much in automation yet,” adds the president.

However, improvements are being made. We see a slowdown in inflation at the end of 2022. Along with building materials, prices would return to “reasonable” levels.

Dormitory +6.9%*

Housing cost inflation accelerated significantly in 2022: an increase of 6.9% compared to the previous year was 3.9%.

At issue is the steady increase in the cost of new homes, materials and maintenance. After peaking in late 2021 and slowing in 2022, inflation for these items is close to 10%.

Added to this are two realities that accelerate the inflationary trend. “The component that will grow the most in 2022 is the cost of mortgage interest,” said Paul Cardinal, director of economic services for the Association of Quebec Construction and Housing Professionals (APCHQ). Mortgage costs, which decreased by 7.7% in 2021, increased by 2.6% in 2022. Inflation accelerated in the second half of the year. APCHQ notes that December 2022 saw the largest increase in mortgage costs since November 1982. As a result of increased costs for landlords, rents also increased sharply: +4.6%. In 2021, renters experienced an increase of 1.6%.

Feed +9.8%*

For a long time, before last year, families here spent an average of 9% of their budget on food.  According to experts, this criterion was violated in 2022.

Archive photo by Louis Deschenes

For a long time, before last year, families here spent an average of 9% of their budget on food. According to experts, this criterion was violated in 2022.

“This is history repeating itself all year long,” said Sylvain Charlebois, an expert on the agri-food sector. According to him, the most common question he is asked is when the prices will go down. “I don’t think it’s going to happen,” he said. Because new criteria have been defined in the last 12 months. “Gone are the days when an average of 9% of the family budget was spent on food,” he adds. The 2023 Food Price Report projects that the average family of four will spend $16,288 on food this year.

Car +7.2%*

Car prices rose 7.2% in 2022, faster than average consumer price growth.

“Parts are rarer, more expensive and more marked on the electronic component,” said Robert Poeti, vice-president of public and government affairs for the Quebec Automobile Dealers Corporation.

Cars on the market are increasingly smart and consumers of electronic parts. Manufacturers, and therefore their customers, face the high cost of components, especially chips.

Globalization, global disruptions and the war in Ukraine have also created an imbalance in supply and demand that is unfavorable to affordability, Poeti says.

* According to Statistics Canada, data for the entire country

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