With Canada’s annual inflation rate hitting a new high last month, some analysts predict that as the economy rebounds from COVID-19, certain sectors will finally level off, while others will continue to see increasing demand and prices for the foreseeable future.
With a 3.6 percent increase in May, Canada’s annual inflation rate reached its highest level in a decade. The increase surpassed the previous year-over-year high of 3.4 percent set just two months earlier in April.
Last month’s annual inflation rate, which increased at a rate not seen since 2011, was attributed in part to its comparison to the low prices sparked by the COVID-19 pandemic last year, which ravaged various sectors of the economy.
While the economy appears to be recovering and normalizing, some economists have pointed to additional factors that are contributing to the rate of inflation reaching historic levels.
While prices are starting to rise for customers across the board in some sectors, analysts believe that most products will eventually “normalize” in the coming months.
The gas, retail, and travel industries all suffered a huge decline in demand and price during the epidemic. For example, gasoline costs plummeted last year and are now back to where they were before the outbreak, resulting in significant inflation on paper.
As individuals are able to shop stores and travel again, the same would apply to apparel stores and airline tickets, but such inflation rates would most likely decrease down by 2022. The stress being felt by various sectors in the global supply chain, including lumber and microprocessors, is the most concerning aspect of the inflation news.
Even when the prices of other products have leveled out, many industries may still be worsening inflation rates. Because of the high cost of lumber and the scarcity of microprocessors, industries such as housing and automobile manufacture have been suffering this pressure.
Consumers’ willingness to tolerate higher costs is another element that will lead to higher inflation in the future.
There’s still the possibility of inflation rates returning to normal, but whether or not that happens is anyone’s estimate. The Bank of Canada and the Federal Reserve of the United States will have to decide if interest rates need to be hiked in the future to keep up with rising costs.