Buyers who buy groceries at the Urban Fresh Produce stand on the market St. Lawrence in Toronto on May 18. Fred Loom / The Globe and Mail
Two months ago, Jackie Chen caused a stir in Carboniere, a city of about 5,000 Newfoundlanders: he announced that Don’s Restaurant was not returning its buffet.
Priced at $ 16.99 before taxes, the buffet was a popular draw in the city – one that residents eagerly awaited to return due to provincial restrictions on COVID-19, which banned buffets for two years. For most of that time, Mr. Chen, the owner of Don’s, which specializes in Chinese cuisine, has seen his food costs rise rapidly and without relaxation.
So when the final rules for restaurants were lifted in March, Mr Chen made the difficult decision to keep the buffet closed. Mathematics no longer made sense.
“If we had to open the buffet, we would have to raise the price almost twice or even threefold,” said Mr Chen, who recently increased the prices of most of his menu by $ 2 per dish.
Consumer sentiment in Canada marks the biggest drop since the onset of the inflation pandemic
Canadian inflation reaches a new 31-year high in April as food prices rise
The situation in Don’s is just one example of how life is changing in this era of high inflation. Similar stories can be found everywhere in the country. Once a peripheral topic, inflation is now the dominant topic of discussion – on AM radio, on the food trail and above the bargaining table.
This is a noticeable deviation. For decades, consumer prices have generally risen at a slow and steady pace in Canada, along with other developed economies. If politicians complained about something, inflation was often too low.
No longer. In April, the annual inflation rate reached 6.8 percent, the highest since 1991. Many economists say that due to the recent rise in gas prices, inflation may soon exceed 7 percent, which would be the highest of nearly four decades. The last time he was so high, another Trudeau was prime minister, and Duran Duran topped the Canadian charts.
The problem is not only that inflation is high, but that it is all-encompassing. About 70 percent of the products and services that make up the consumer price index (CPI) – the main indicator of inflation in the country – are growing by more than 3 percent a year, making it harder to avoid rising prices. In addition, reminders of high inflation are relentless, especially at gas stations and supermarkets, places for frequent shopping.
These descriptions of inflation – high, widespread and frequent – are a dangerous mix for the economy and especially for the Bank of Canada. Central bankers are trying to raise interest rates enough to curb inflation, but without sending the economy into a painful downturn. However, this is a difficult feat.
“Historically, soft landings have been very difficult to design,” said Michael Weber, an associate professor at the Booth School of Business at the University of Chicago. “I think it’s very unlikely that we’ll see inflation go down to a target rate of about 2 percent without a recession. I think it’s almost impossible. “
Even without a recession, people are making adjustments in their lives.
Victoria’s Rebecca Bradley spends about $ 200 to fill her Dodge Durango, which she uses to deliver food for a delivery app. The exorbitant price of gasoline – at the local level it jumped to about $ 2.30 per liter for ordinary unleaded – eats up her pay. “It’s like you don’t even make a salary,” she said.
A mother of three, Mrs. Bradley does not forget to lose money. She takes care to freeze the leftovers or fruits that are ripe. And for dinner it is usually home-cooked food. “We rarely get food at home. We just can’t afford it, “she said.
Inflation is particularly high on Prince Edward Island. The province’s CPI rose 8.9 percent in April from a year earlier, well away from New Brunswick, the next-highest province by 7.6 percent.
Susan Marie, an island photographer, bought specific treats for her dog for $ 6.99. They now cost $ 12.99. (“I will buy them because she loves them, she is older [and] she deserves it. ”) And because of higher gasoline prices, Ms. Marie makes fewer trips to the beach, a 25-minute drive from her location in Charlottetown.
“I lived in Calgary for nine years and I was used to paying city prices,” she said. “Now we pay more” on the island, “for our petrol, for our food, for our living expenses.”
These two elements – gasoline and food – weigh heavily on consumer psychology. Many people buy them often, which is reflected in their expectations for future inflation, according to a huge number of economic studies. Consumers also tend to notice higher prices than layoffs.
They had something to notice lately. Food prices jumped nearly 10 percent in April, the biggest annual increase since 1981. This week, too, the average price of ordinary unleaded gasoline exceeded $ 2 a liter for the first time.
Inflation expectations are important. Workers negotiate wages and companies set prices accordingly based on their views on future costs. In this sense, inflation can be self-fulfilling.
Based on its consumer and business surveys, the Bank of Canada found that inflation expectations for the next two years have risen, but remain “well anchored” for five years. That can change.
“Unfortunately, as grain and energy prices rise, we probably haven’t seen peak food inflation yet,” said Benjamin Reitz, an interest rate strategist at Bank of Montreal, in a recent note to customers. “Combined with the rise in gasoline prices, there is a real risk that inflation expectations will remain unsettled.
In this scenario, the Bank of Canada will have to aggressively raise interest rates – perhaps above 3 percent – to bring expectations back to earth. (Its political rate is currently 1% and financial analysts widely expect the rate to reach 1.5% on June 1.)
Concomitant damage can be significant for lower-income households that have fewer savings – if any – and spend more of their income on debt payments.
Neil Hetherington, CEO of Daily Bread Food Bank in Toronto, is already seeing tensions.
In March 2019, the food bank had about 60,000 customer visits. Visits rose to 160,000 last March. The figures are “absolutely bleak,” said Mr Hetherington, who attributed the jump in part to rising inflation.
In turn, this increases the cost of operations. Prior to the pandemic, the annual food budget for daily bread was about $ 1.5 million. Mr Hetterington estimates that food costs will reach $ 10 million next fiscal year.
“It’s just not improving, despite the opening of the economy,” he said.
Ron Knibone and Margarita Wilkins, researchers at the University of Calgary School of Public Policy, have studied some of the factors that influence food bank visits, focusing specifically on Toronto’s Daily Bread and Social Conditions. In a recently published document, they found that visits to food banks increased with rents and reductions in the minimum wage and disability benefits, after taking into account inflation.
On these fronts, the current circumstances are a challenge. Rents have jumped 4.5% in the past year, with Ontario (5.3%) and British Columbia (6.4%) increasing. Average wages are not rising at the same rate as inflation, leaving millions of workers with reduced purchasing power. And weak aid through social assistance programs emerged this spring as an election issue in Ontario.
“We know that there is essentially a tidal wave of various factors that lead to these exceptional quantities coming into food banks,” Mr Hettington said.
How all this is shaking is hard to predict. Royce Mendes, head of macro strategy at Desjardins Securities, suspects that rising interest rates will dampen demand and that global inflationary pressures will ease.
However, “the conviction I have in this main case is not very high,” he added.
The risks are twofold, Mr Mendes said. On the one hand, inflation may remain high if people continue to spend a lot, especially those households that have amassed huge savings during the pandemic. This would force central banks to raise interest rates aggressively. On the other hand, it is possible that the inflation jump will harm people and companies so much that even without many more interest rate hikes, the economy will plunge into recession.
“Every day there is new conflicting data,” Mr Mendes said. “We don’t know – and probably won’t for a few more months – which way the economy is going down.
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