Inflation in Canada soared 40 years ago. Is today’s price surge any different?
Global News
Surging prices in Canada are drawing comparisons to the inflation crisis of the 1970s and 80s. Here's what's similar, and importantly, what's different about today's pressures.
Inflation in Canada continues to surge despite the Bank of Canada’s efforts to tamp down on price growth, with some economists and the central bank’s own governor expecting an even higher reading in the June report due Wednesday.
Inflation, which hit an annual rate of 7.7 per cent in May, has topped the Bank of Canada’s estimates through the first half of 2022.
Tiff Macklem, who holds the top post at the central bank, told a group of business owners last week that inflation will likely top 8.0 per cent in due course. The Bank of Montreal (BMO) said in its updated inflation forecast earlier this week that it now expects inflation will average 8.3 per cent across the third quarter of the year.
The higher the temperature rises on Canada’s inflation thermometer, the more Canadians of a certain age flash back to the 1970s and 80s, when annual inflation hit 12.5 per cent in 1981.
Back then, the Bank of Canada was forced to raise its benchmark interest rate to 21 per cent to get prices back under control, triggering the deepest economic contraction since the Great Depression.
Experts tell Global News there are some striking similarities between today’s inflation episode and the price pressures of 40 years ago — as well as a few key differentiators that could mean the difference between hitting a recession or achieving the “soft landing” the central bank is after.
James Orlando, senior economist with TD Bank, first started tracking the similarities between today’s inflation period and the highs of the previous generation back in April.
Then, he noted that the causes of inflation today — surging food, fuel and shelter prices — were the same ones driving Canadian prices higher over two distinct periods, one in the early 1970s and one later in the decade, stretching into the 1980s.