Rising global demand and worries about supply shortages drove up natural gas prices in the U.S., Europe, and Asia. But prices in western Canada plummeted drastically. The best-case scenario is that lower inflation will result from rising interest rates and a slowing economy.
Why is that?
The pace of inflation is cooling. "The annual rate came in at 7% in August," according to Statistics Canada. That is down from the four-decade high that was seen this June.
However, that does not simply imply that prices are declining. Even the most optimistic predictions anticipate that prices will rise even when inflation returns to target levels. BMO’s senior economist Benjamin Reitzes says, "It’s more that price increases will be slower rather than prices will be falling."
In a perfect world, rising interest rates and a slowing economy would bring inflation down to a more manageable level. The global price of oil is currently declining, primarily causing a slowdown in total inflation.
Some of the greatest and earliest drivers of inflation are returning to reality as higher interest rates drive up borrowing costs and slow economic development. This year has seen a sharp decline in the price of oil, and transportation costs are virtually back to pre-pandemic levels.
However, prices for goods and services continue to rise. In August, food costs increased by 9.8%. The battle to lower prices will continue. According to CBC, the Bank of Canada is expected to move forward with its plan; to raise interest rates even higher.
As a result, Canadians already feeling the pinch from rising prices will experience even more pressure from rising debt payments. The economy will deteriorate, and jobs will be lost. It will take a long time to bring expenses back into the range; that the Bank of Canada has deemed appropriate, even though the price rise is moderating.
People are struggling across the nation as a result of rising costs. Higher interest rates are the solution, which puts even more pressure on households with debt. Growth in prices is sluggish. But this year's rise has established a new normal.
Written By: Ariana Richard