As inflation eats away at Canadians’ wallets and puts the pressure on the Bank of Canada to hike rates, rising costs on the West Coast are proving to be a “curious case,” according to a TD economist.
Canada’s inflation rate hit a three-decade high of 6.7 per cent in March amid macroeconomic pressures such as Russia’s invasion of Ukraine, global supply chain disruptions and labour shortages that have pushed wages upwards.
But B.C.’s inflation rate stood notably below the national average – and has done so consistently for months – at 6 per cent.
“B.C.’s inflation rate is a curious case,” TD economist Rishi Sondhi said in an April 28 note.
“Job markets are among the tightest in the country and the economic backdrop is generally solid, yet inflation has lagged that of Canada. This is not a typical phenomenon.”
He pointed out that food and energy prices make up the smallest share of the Consumer Price Index basket out of all the provinces at just over 20 per cent. Sondhi said this has shielded the province from rapid inflation in those categories.
He also found that food inflation has been slower in B.C. due to restaurant menu prices remaining relatively stable.
“This is a bit of a puzzler,” he said, noting wage inflation in B.C.'s accommodation and food services industry has been keeping pace with the rest of Canada.
Sondhi also found that the province’s accommodation and food services industry is also more exposed to international markets.
“However, the biggest wedge between Canada and the West Coast province is in transportation costs, as gasoline prices haven't grown as sharply [as] the latter. In addition, there was a steep cut to vehicle insurance premiums in B.C. last year, lowering vehicle operating costs.”
There had been signs long before Russia’s invasion of Ukraine that inflation was becoming increasingly problematic.
Going into 2022, the overnight rate had been sitting at 0.25 per cent since the outset of the pandemic as the central bank aimed to inject cheap capital into the economy as the COVID-19 crisis unfolded. The federal government had also been earmarking billions of dollars to keep business activity charged amid the uncertainty.
At the same time demand for services such as tourist activities or in-person events had dropped during the pandemic, many Canadians found themselves sitting on additional savings and directed much of their dollars towards buying goods. That in turn put pressure on prices.
The global economy also bounced back significantly in 2021, putting further demand on labour markets after many had been laid off the year before. The additional demand for labour had put pressure on wage hikes as well.