The annual inflation rate hit 6.7% in March, the largest year-over-year increase in the consumer price index in more than 31 years, Statistics Canada announced Wednesday.
The increase from a 5.7% gain in February, and was the highest reading since inflation hit 6.9% in January 1991 when the GST was introduced.
Much of March’s increase was fueled by higher prices at the pump, with gasoline prices up 39.8% from the same month a year earlier.
Statistics Canada said the consumer price index would have risen 5.5% year over year had it excluded gasoline from its calculations, suggesting much greater price pressures important.
The agency said prices rose in March due to the country’s boiling real estate market, supply chain constraints and the war in Ukraine which affected oil and food prices.
According to Statistics Canada, homeowners’ replacement costs, which include new home prices, rose 12.9% year-over-year in March.
Grocery store prices rose 8.7% year-over-year, the fastest annual rate since March 2009, helped by the largest annual increase in dairy and egg prices since February 1983.
Russia’s invasion of Ukraine has also been blamed on soaring pasta and grain prices, with the latter increasing at the fastest annual rate since June 1990. Russia and Ukraine are major exporters of corn.
Provincially, Statistics Canada said the growth was most pronounced in Prince Edward Island, where prices rose 8.9% year over year.
As prices rose faster on an annual basis in March, average hourly wages rose 3.4%, still well behind inflation and eroding the purchasing power of consumers at all income levels, a said BMO Chief Economist Douglas Porter.
“It’s not sustainable to have a gap of more than three percentage points between inflation and wages,” he said.
“Either inflation has to come down quickly or wages have to rise to meet if not exceed inflation in a fairly short time, and I think it will be a bit of both.”
The rising rate of inflation has spooked economists and central bankers as Canadians are beginning to expect inflation to stay high for longer.
Last week, the Bank of Canada raised its key rate by half a percentage point, bringing the benchmark interest rate to 1%, warning that more rate hikes are to come this year.
“The Bank of Canada has fallen behind and it has recognized it and now it has to catch up,” said Desjardins chief economist Jimmy Jean.
“That’s why they came out with this 50 basis point rate hike, and we think they have another one in store for the next meeting.”
Rising interest rates are expected to encourage saving and dampen borrowing and spending, helping to cool the Canadian housing market and the cost of goods. As demand falls, prices tend to rise more slowly or even fall slightly, which dampens inflation.
But the moderating effect of higher interest rates will not be immediate.
“It takes time for these interest rate hikes to have an effect on the economy and on inflation,” he said.
The average of the three main measures of inflation, which are considered the best indicators of underlying price pressures and closely monitored by the Bank of Canada, was 3.77% in March. This is the highest since March 1991 and up from February’s 3.53%.
Here is a list of March inflation rates for Canadian provinces (previous month in parentheses):
— Newfoundland and Labrador: 6.3% (5.1)
— Prince Edward Island: 8.9% (7.4)
— Nova Scotia: 6.8% (5.7)
— New Brunswick: 7.4% (6.0)
— Quebec: 6.7% (5.4)
— Ontario: 7.0% (6.1)
— Manitoba: 7.4% (6.1)
— Saskatchewan: 5.7% (4.7)
— Alberta: 6.5% (5.5)
— British Columbia: 6.0% (4.7)
This report from The Canadian Press was first published on April 20, 2022.