‘The worst is yet to come’: Experts say Canadians can expect inflation to keep rising while wages fall behind

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Commuting, dining out, dining in, buying a house, renting, buying a car — all these everyday activities are getting more expensive, with no respite in sight.

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Commuting, dining out, dining in, buying a house, renting, buying a car — all these everyday activities are getting more expensive, with no respite in sight.

Inflation continued to rise in April, with the Consumer Price Index up 6.8 per cent year over year — slightly higher than the 6.7 per cent rise in March and the highest rate since January 1991 — thanks to the costs of food, gas and shelter.

Gas was again a key driver of inflation, rising more than 36 per cent in price; a steep increase, but a slowdown from March’s breakneck pace of nearly 40 per cent. Excluding gas, the year-over-year inflation rate for April was 5.8 per cent.

R.J. Johnston - Toronto Star The inflation numbers for April are coming out Wednesday morning. The index is expected to continue on its upward trajectory.

Experts say consumers should expect continued high prices at the grocery store and the gas pump, and lower purchasing power as wages struggle to catch up with the cost of living.

“The key takeaway from April’s CPI release is that inflation is spreading much more broadly, and at clear risk of getting firmly entrenched,” Bank of Montreal chief economist Douglas Porter wrote in a report, predicting inflation north of six per cent will continue throughout 2022.

“Barring a deep dive in oil prices in coming weeks and months, we expect that the worst is yet to come,” said Porter.

“This is the relative calm before another downpour in next month’s report, as gasoline prices are tracking a double-digit increase for May alone,” he said.

If the war in Ukraine continues, gas prices will likely keep climbing into the summer months, said David Macdonald, senior economist for the Canadian Centre for Policy Alternatives.

“There’s likely more pain to come on the gas front,” he said.

Prices for groceries continued to climb at 9.7 per cent, up from 8.7 per cent in March, and the largest increase since September 1981.

Fruit and meat were both up 10 per cent, pasta almost 20 per cent, bread more than 12 per cent, and cereal products almost 14 per cent.

In a release Wednesday, Monex Canada analyst Jay Zhao-Murray said the increase in wheat and cereal products is likely to continue, given the war in Ukraine where much of the world’s wheat is grown, and could be exacerbated by a poor harvest in the Northern Hemisphere.

While food inflation started off being driven by meat products last fall, it’s now broadened to include most common food items, due to gas prices and the war’s impact on wheat and fertilizer, Macdonald said.

The price of dairy and eggs was up almost eight per cent, with butter in particular up more than 15 per cent. Oranges were up more than 21 per cent, and lettuce 28 per cent, while edible fats and oils were up almost 29 per cent.

Food purchased from restaurants rose more on a month-over-month basis than food bought from stores, at 1.5 per cent between March and April 2022 compared to 0.7 per cent for groceries.

Whether you’re a renter or a homeowner, the cost of keeping a roof over your head is also on the rise.

The cost of shelter was up 7.4 per cent, the fastest pace since June 1983, in part because of higher costs for natural gas and other fuels. Natural gas rose 22.2 per cent and fuel oil and other fuels gained 64.4 per cent.

The mortgage interest cost index also increased marginally, for the first time since April 2020.

That’s the very beginning of the Bank of Canada’s interest rate hike’s impact starting to show, said Macdonald, though it’s a slow indicator, since many won’t see their mortgage payments affected until they refinance or make a purchase.

Homeowners’ replacement costs — related to the price of new homes — were up 13 per cent. Rent prices increased by 4.5 per cent, partly driven by Quebec, Ontario and British Columbia.

TD senior economist James Orlando said inflation is broadening, past certain goods to impact services and other costs.

“There’s so much in the pipeline for inflation, and everything seems to be going through that pipeline,” he said.

Meanwhile, wages continued to fall far behind the rising cost of living. Average hourly pay was up 3.3 per cent, which means Canadians are losing purchasing power as inflation creeps up. Inflation in the U.S. hit 8.3 per cent in April, slightly down from 8.5 per cent in March.

“You effectively get a real pay cut,” said Orlando.

Since April 2020, the average hourly wage has essentially gone down $2.63 in terms of spending power, said Macdonald: “Workers are falling way behind.”

As for what’s to come, Orlando wrote in a report May 18 that the bank doesn’t expect much of a reprieve in sight for food costs.

“On the shelter side, we are likely to see a continuation of rent price increases alongside rising mortgage interest costs,” he wrote. “This will be balanced against the impact of declining house prices.”

“The gas market is remaining elevated and I think that’s going to be something that will be driving overall headline inflation (in May),” he said in an interview.

The latest inflation data reinforces the likelihood that the Bank of Canada will hike its key rate by another 50 basis points on June 1, and again in July, said Orlando.

“All this does is it really cements the view that the interest rates need to rise,” he said.

The central bank hiked its key rate by half a percentage point to one per cent last month, and has made it clear more hikes are on the horizon. The bank is targeting an inflation rate of two per cent, but in its monetary policy report last month it predicted inflation would average closer to six per cent in the first half of 2022, a forecast it will likely revise.

It’s important to note that since the Bank of Canada’s 50-basispoint increase happened in mid-April, its full effects have yet to be seen on consumer prices, said Macdonald.

“We’re really in a bit of a waiting period,” he said. “We haven’t seen a full month yet of the impact of that 50-basis-point increase.”

With files from The Canadian Press and Bloomberg

Rosa Saba is a Toronto-based business reporter for the Star.

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