March 22, 2023

A “perfect storm” is brewing as Canadians face red-hot inflation and rising prices

OTTAWA/WINNIPEG, Manitoba, Oct 30 (Reuters) – At a warehouse in an industrial area in Ottawa, giant metal boxes of donated food pile up as volunteers sort canned goods, pasta and other food to distribute to pantries across the Canadian city. .

Demand at the Ottawa Food Bank is up 33% from pre-COVID-19 levels, with visits increasing as grocery, gas and rent prices rise, along with rapidly rising borrowing costs, and more Canadians struggle to make ends meet.

“We’re definitely seeing more people,” said Ottawa Food Bank CEO Rachael Wilson, adding that the organization now spends C$6 million ($4.4 million) a year on food, compared to C$2 million before the pandemic.

“It’s because the cost of food has gone up … but also because a lot of people are turning to the food bank right now,” Wilson said. “It’s a perfect storm, unfortunately.”

Headline inflation in Canada has slowed to 6.9% from a peak of 8.1%, but food costs continue to accelerate and price pressures remain sticky.

Meanwhile, the Bank of Canada (BoC) has raised interest rates by 350 basis points in just seven months, one of its steepest tightening campaigns ever, to try to force inflation back to its 2 percent target.

As a result, Canadian consumers and small businesses are being squeezed on both sides, prompting politicians, unions and even some economists to call on the central bank to slow its tightening pace.

The bank said this week that its tightening campaign was nearing its peak, but made clear it was not done yet as it raised interest rates by 50 basis points to a new 14-year high.

In a televised interview after the decision, BoC Governor Tiff Macklem said that restoring price stability would not be easy, but rampant inflation would be worse.

“I understand that many Canadians are in debt and that rising interest rates are adding to their stress. We’re watching that closely,” he told Radio-Canada.

“Everybody’s Nervous”

Canada, with expensive housing and the highest levels of G7 household debt, is particularly vulnerable to higher interest rates as the BoC’s aggressive rate hikes trigger a recession.

Wes Farnell, who runs Eight Ounce Coffee in Calgary with his wife, Jen, said their specialty coffee equipment business grew 25 to 35 percent a year before the pandemic, then boomed when restrictions led to demand for high-end lifestyle gear. .

Now he is already seeing signs that hot inflation and worries caused by the recession have caused consumers to focus on essentials instead of luxury appliances, which is reducing large orders even as the Christmas shopping season approaches.

“Our wholesalers are definitely more careful about spending money,” Farnell said. “Everybody is nervous… Will people spend money? Will there be money to be spent? Will inflation rise further?”

The pain is also felt on the farm, where record high debt levels and steep operating costs weigh on many farmers despite high grain prices.

For Brodie Haugan, who farms with his parents near Orion, Alberta, inflation has hit particularly hard, along with the relentless drought.

As feed prices rose faster than cattle, Haugan reduced his herd of 400 cows by 30% in the spring.

He also delayed buying a much-needed new truck because the price went up to C$100,000 from C$75,000 before the pandemic.

“Generally everything has gone up in price, which makes it really hard to do anything,” Haugan said.

($1 = 1.3516 Canadian dollars)

Reporting by Julie Gordon in Ottawa and Rod Nickel in Winnipeg; Surgery Josie Kao

Our standard: Thomson Reuters Trust Principles.

Rod Nickel

Thomson Reuters

Covers energy, agriculture and politics in Western Canada, with the energy transition as a key focus area. He has covered briefs in Afghanistan, Pakistan, France and Brazil, as well as covering Hurricane Michael in Florida, Tropical Storm Nate in New Orleans and the 2016 Alberta wildfires, and political leaders on the campaign trail during two Canadian election campaigns.

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