Awaken Investments of Aligned Capital Partners
Between the pandemic, border restrictions, supply chain issues, inflation, computer chip shortages and remote working environments, it’s hard to keep up with how fast everything seems to be changing. The one topic that has been front and center in both the US and Canada is inflation.
Inflation has been consistently outpacing economic predictions, causing stress and confusion. Here, we’ll break down the current state of inflation in both the US and Canada and explain how this may impact you in the years to come.
Inflation in Canada 🇨🇦
Let’s start by examining inflation in Canada. Canada’s inflation rate hit an 18-year high in October 2021, at 4.4%.1 This rate beat the average analyst’s estimate of 4.3%, but Tiff Macklem, the Governor of the Bank of Canada, called the hot inflation temporary as the country sifts through supply chain bottlenecks and other economic factors.1
As a response to these high inflation rates, it’s no surprise that the Bank of Canada may start hiking interest rates.2 Currently, rates are at a record low, but raising them may help combat inflation. Macklem said in January 2022 that the economy no longer needed to rely on such low interest rates to deal with the effects of COVID-19.2
Inflation in the US 🇺🇸
Next, let’s compare those numbers of inflation to those we are seeing in south of the border in the US. According to The Guardian, inflation jumped to 7% in December 2021, making it the seventh consecutive month in which inflation has topped 5%.3
While these spikes have generally been seen as transitory, Americans are wondering how long this inflation will last. The biggest contributors to the high level of inflation right now are price increases in housing and used cars and trucks and lingering supply chain issues across the globe. Food prices have also continued to increase. According to economists at Bloomberg, inflation is expected to spike yet again in February 2022, much to America’s dismay.4
As a response, many Americans are bracing for the Federal Reserve to raise interest rates in 2022, but the question is how quickly. Some economists recommend raising interest rates gently, while others say that interest rates may have to rise sharply to fight inflation.5,6
Now, let’s compare these inflation numbers in the US to those in Canada.
What This Means as a Consumer
These staggering inflation numbers aren’t limited to the US and Canada. We are seeing the impacts of increased inflation all over the world amid supply chain hurdles and labor shortages. Many countries, including Canada and the US, are still wrestling with COVID-19 spikes.
For consumers, high inflation means that the cost of living will likely go up. The prices of goods such as food, gas, cars, and rent are increasing all over Canada and the US. Groceries have increased 6.5%, gas is up 49.6%, and the prices for new cars and trucks have increased 11.8% in the US.7
If the governments in both the US and Canada do decide to raise interest rates, this may slow down economic activity, which could curb inflation. Even though both economies have essentially recovered from the impacts of COVID-19, interest rates have remained low to support the recovering economies.
If borrowers need to pay more in interest for loans like mortgages, car payments, or to start a business, they might be more hesitant to sign for that big purchase, which will lead to lower levels of economic activity.
The question of how soon the US and Canadian governments increase interest rates will depend on continued supply chain shortages, labor shortages, and other COVID-19 pressures. It’s a fine line between taming inflation and not slowing down the economy too much.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.