A 'perfect storm' is swirling as Canadians face red-hot inflation and rising rates

A ‘perfect storm’ is swirling as Canadians face red-hot inflation and rising rates

OTTAWA/WINNIPEG, Manitoba, Oct 30 (Reuters) – Giant metal crates of donated food pile up at a warehouse in an industrial section of Ottawa as volunteers sort canned goods, pasta and other food to be distributed to pantries across the Canadian city. .

Demand at the Ottawa Food Bank is up 33% from pre-Covid-19 levels, with footfall soaring due to spiraling food, gas and rent prices along with rapidly rising borrowing costs that have more Canadians struggling to make ends meet.

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

“That’s because the cost of food has gone up … but also because of the number of people who are reaching out to the food bank right now,” Wilson said. “Unfortunately, it’s a perfect storm.

Canada’s headline inflation rate eased to 6.9% from a peak of 8.1%, but food costs continue to accelerate and underlying price pressures remain firm.

At the same time, the Bank of Canada (BoC) raised interest rates by 350 basis points in just seven months, one of its sharpest tightening campaigns ever, to try to force inflation back to its 2% target.

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

The bank signaled this week that its tightening campaign was nearing its peak, but made clear it wasn’t done yet as it raised rates by 50 basis points to a fresh 14-year high.

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

“I understand that a lot of Canadians are in debt, and an increase in interest rates will put more stress on them. It’s something we’re watching closely,” he told Radio-Canada.


Canada, with its expensive homes and the highest levels of G7 household debt, is particularly vulnerable to higher interest rates, with fears growing that aggressive BoC hikes will trigger a recession.

Wes Farnell, who runs Eight Ounce Coffee in Calgary with his wife, Jen, said their specialty coffee equipment business was growing 25% to 35% a year before the pandemic and then boomed as lockdowns led to an increase in demand for high-end lifestyle appliances . .

Already, he’s seeing signs that hot inflation and recession fears have kept consumers focused on essentials rather than luxury appliances, driving up large orders even as the holiday shopping season approaches.

“Our wholesalers are definitely more cautious about spending money,” Farnell said. “Everybody’s nervous… Will people spend money? Will there be any money to spend? Will inflation rise even further?”

The farm is also feeling the pain, with record debt and rising operating costs weighing 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.

With feed prices rising faster than livestock prices, Haugan reduced his 400-cow herd by 30% in the spring.

He also delayed the purchase of a much-needed new truck as the cost climbed to C$100,000 from C$75,000 before the pandemic.

“Everything has gone up in price, so it’s very difficult to actually do anything,” Haugan said.

($1 = 1.3516 Canadian dollars)

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

Our standards: Thomson Reuters Trust Principles.

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Thomson Reuters

He covers energy, agriculture and politics in Western Canada, with the energy transition as a key area of ​​interest. He completed brief reporting stints in Afghanistan, Pakistan, France and Brazil, and covered Hurricane Michael in Florida, Tropical Storm Nate in New Orleans and the 2016 Alberta wildfires, and trailed political leaders during two Canadian election campaigns.

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