The Pressing Issue of Canadian Inflation: A Comparison

What is Inflation?

In an economy, moderate inflation is a sign of growth. Consumers will spend more money rather than save, as the value of money decreases over time when prices go up. In tandem, wages tend to go up as well, allowing consumers to keep pace with increased costs. However, when inflation rapidly surges and becomes unstable, it can lead to detrimental effects for both businesses and consumers. This is the pressing issue that all Canadians face today.

2022

Historically, Canada has maintained a relatively stable inflation rate, with occasional instances of spikes and deflation. The economy has seen an especially alarming increase in June 2022, when Canadians experienced pressing crisis–peaking at an 8.1% inflation rate. As a result, prices soared across essential goods and services. This rendered necessities such as gas, food, and rent unaffordable for many Canadians. This rapid acceleration was due to numerous factors such as supply chain disruptions, high energy prices, and pandemic-related economic policies. At this time, Canada was still struggling to recover from the economic effects of the COVID-19 pandemic; demand surged, but supply chains were still coming back from labour shortages and factory shutdowns. In addition to this circumstance, the intensifying Russia-Ukraine war prompted oil and gas prices to an upswing. To control the inflation, the Bank of Canada aggressively raised interest rates from 0.25% in early 2022 to 4.25% by the end of the year, in an effort to reduce spending. However, despite these desperate measures, many Canadians struggled with high living costs, forcing them to cut down spending and rely on savings.

2024 and risks in 2025

By 2024, the inflation rate reached 2%. This was approximate to the Bank of Canada’s goal. The decline was driven by major interest rate increases, global supply chain recovery, and the stabilization of the housing market. Additionally, wage growth slowed down, which reduced accelerating prices and consumer spending. However, many concerns stand for Canada’s economic security in 2025. Current trade tensions with the U.S., specifically tariffs, threaten surges for key imports. Ongoing conflicts affecting global oil supply can also potentially push energy prices up. Furthermore, rising corporate debt and the potential for an economic shutdown create much uncertainty as well. While inflation has eased, Canada still faces many struggles in the effort of controlling inflation and maintaining economic growth. Canada’s economy is not entirely out of danger just yet.

Key Comparisons

*Peak rates from every year

Inflation Rates
June 2022      January 2024      January 2025
    8.1%               2.9%                   1.9%

Interest Rates
December 2022     June 2024      January 2025
      6.45%                6.95%              5.2%

Gas prices
June 2022       April 2024       January 2025
$2.29/liter       $1.86/liter        $1.62/liter

Average House Prices
February 2022        April 2024       January 2025
   $816,720             $703,446          $670,064

Federal Minimum Wages
   2022            2024           2025
$15.00/hr     $17.30/hr    $17.75/hr

Sources:

“ICICI Bank Canada – Rate History – Prime Rate.” ICICI Bank, www.icicibank.ca/personalbanking/ratehistory_popup_interestrates.