Inflation To Rise Before Levelling Off

COVID-19 caused high levels of inflation in 2021 and into 2022, says Aon’s latest inflation deck. The pandemic shifted demand away from services and towards goods while also disrupting global supply chains. Broad inflation is at a 39-year high of 7.7 per cent, year over year, compared with an average of about two per cent in the two decades pre-COVID. Building materials inflation has outpaced broad inflation measures on goods and services, having outpaced the CPI mostly due to higher lumber and building material costs. Building material prices also increased in the most recent quarter after a period of levelling off since fall 2021 as supply chain disruptions eased and shipping costs began to recede. Consumers expect broad inflation to be around five to six per cent over the next year, but return to pre-COVID levels in the medium term. The Bank of Canada expects high inflation to remain throughout 2022, but to ease to be around 2.5 per cent in the second half of 2023 and return to its two per cent target in 2024.