In both the US and Canada, we are living in unprecedented times. In both Canada and the United States, we are seeing record-high inflation rates. These spikes are due to several factors, from supply chain issues to a pending recession to economies still reeling from COVID-19.
Here, we're going to help outline inflation in both the US and Canada, including the history of inflation in both countries and how that impacts you.
Inflation in the United States
First, let's start by examining inflation in the US. According to Trading Economics, the annual inflation rate in the US was 8.3% in August of 2022, the lowest it has been in four months but higher than market forecasts of 8.1%. Although inflation has dropped slightly from earlier this year (it hit a peak of 9.1% in June 2022), it’s still up more than a percent from the end of 2021.1
Inflation impacts everything we buy, but recently, the US has seen the most dramatic spikes in food prices. According to the US Bureau of Labor Statistics, the prices for food at home increased 13.5%, the largest 12-month percentage increase since the period ending March 1979. In addition, prices for food away from home increased 8% for the year ended August 2022, the largest over-the-year percentage increase since an 8.4% increase.2
Now, let's compare these inflation numbers in the US to those in Canada.
Inflation in Canada
Next, let’s compare those numbers of inflation to those we are seeing in Canada.
According to Trading Economics, Canada's annual inflation rate was at 7.6% in July 2022, easing from a 39-year high of 8.1%, which was hit in the prior month. Like the US, the category driving the highest rate of inflation is groceries, at 9.9%. Other sectors, such as transportation costs, shelter, household operations, and clothing, are growing at a slower pace than in previous months. Canada's inflation rates hit a high in June 2022.3
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. But things seem to be slowing down a little after record-high inflation rates over the summer.
As a consumer, the biggest impact of these high inflation rates is that the cost of living will likely increase. Goods like food, gas, cars, and rent are increasing in cost all over Canada and the US.
We've already seen both the US and Canadian governments increase interest rates to slow inflation. In July 2022, the Bank of Canada increased its target for the overnight rate to 21.2%, with the bank rate at 2.75% and the deposit rate at 2.5%. In the same month, the US Federal Reserve also voted unanimously to raise the interest rate paid on reserve balances to 2.4%.4,5
If borrowers need to pay more for the loans they get, such as for mortgages or car payments, or to start a business, they might be more hesitant to sign for that big purchase, which will lead to less economic activity and potentially slower inflation rates.
Economists all over the world, including in both Canada and the US, are preparing for a recession, and increasing interest rates is one way to fight rising inflation. We will see how these numbers impact the coming Q4 holiday season.
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