Inflation: What Omicron could mean for prices in 2022

The spread of the Omicron variant could dent the global economic recovery. But will it also slow down inflation?

If you’re wondering what inflation will be like in 2022, economists have a go-to answer: it really depends on just how the Omicron wave of COVID-19 evolves.

“We’re pretty comfortable with the notion that if we can get the global supply chain unglued … inflation will come down over time from where it is now,” says Avery Shenfeld, chief economist at CIBC.

“The problem is, unless you have a crystal ball on COVID and know when we’re going to have enough of the world’s population vaccinated so we don’t keep getting these disruptions to manufacturing and shipping around the world, it’s very difficult to predict how long that’s going to take,” he adds.

Canada’s inflation rate held steady at 4.7 per cent in November, matching the reading from October, which was the highest since February 2003, Statistics Canada said on Dec. 15.

Bank of Canada governor Tiff Macklem has called the current bout of rapidly rising prices “transitory but not short-lived.” The central bank has attributed inflation to worldwide supply snarls that are pushing up the prices of anything from food to new vehicles, a rebound in the price of some goods that had become cheaper in the earlier stages of the pandemic, and soaring energy costs.

The federal government’s fall fiscal update, which Deputy Prime Minister and Finance Minister Chrystia Freeland tabled on Dec. 14, warns the rapid spread of the Omicron variant “clouds” the outlook for inflation.

“The path forward will depend on a number of tailwinds and headwinds, which could either bolster the recovery or push it off course. Of concern, the global health situation has deteriorated in recent weeks, with resurgences of COVID-19 in some regions and the emergence of a new variant, Omicron,” the update reads.

Rising case counts tied to the new variant could further complicate global supply chain challenges but also slowed energy demand, temporarily dampening energy prices, economists told Global News.