Prices Are On The Rise, For Now

Prices are on the rise, says the Business Development Council (BDC) in its May ‘Monthly Economic Letter.’ After more than a decade of low inflation, indicators are starting to show an increase in prices with the consumer price index (CPI) increasing to above two per cent in March. Many businesses are facing higher costs and, increasingly, they are passing this on to consumers. However, BDC says several factors lead it to believe this uptick in inflation won’t last. The pandemic disrupted the usual consumption patterns of individuals as purchases of services were limited by lockdowns while demand for goods increased. Demand for products such as metals and minerals, lumber, and agricultural products surged. Supply of these types of products needs time to adjust to the sudden increases in demand, leading to higher prices. The pandemic has also created supply-chain bottlenecks, causing further pressure on industrial production costs. At the same time, stimulative monetary and fiscal policies have led to a lot of liquidity in the economy. While there is still a great deal of uncertainty as to when the pandemic will be over, the acceleration of the vaccination campaign should lead to a reopening of the Canadian economy within a few months. The reopening could mean a sudden increase in the speed at which money circulates in the economy, adding to inflationary pressures. If households decide to spend more than expected, there will be more inflation. This is a very real risk as some reopened economies have seen a surge of consumption from people who have been couped up at home for months, says BDC.