The Bank of Canada says no new rate hike IF inflation falls.
And in his prepared remarks Tiff Macklem said, “We are prepared to raise interest rates further.”
So the question is – where is inflation going?
- 2021 electricity costs in Canada https://www.energyhub.org/electricity-prices/
- In 2018 it was 11.4 cents / KWH. In 2022 it was 12.6 cents a 10% increase in 4 years
- BC Hydro set to raise electricity bills 2% this year and 2.7% next year
- For natural gas in 2018:
Basic charge (for maintaining infrastructure and delivery system ) = $.389/day
Delivery Charge (?) = $4.355 per Gjoule
Storage & Transportation (?) = $.758 per Gjoule
Gas cost = $1.549 per Gjoule
- The average BC house uses about 10 Gigajoules per month averaged over the year.
- 2023 Rates;
Basic Charge = $ .4216 per day
Delivery charge = $5.933 per Gjoule
Storage & Transportation = $1.134 per Gjoule
Gas cost = $5.159 per Gjoule
Cost per month in 2018 = $78.29
Cost per month in 2023 = $134.91 a $56.62 increase or 72.3% increase in 5 years
= 14.5% increase per year.
In his Dec.2022 speech, Tiff Macklem said;
“One single thing didn’t cause inflation to climb to the highest it’s been in decades. Several unexpected factors combined and interacted with each other to drive prices upward:
- Supply chain problems were more widespread and lasted longer than expected. This increased the prices of many goods imported into Canada.
- Russia invaded Ukraine, causing the prices of oil and some agricultural products to rise around the world.
- When the Canadian economy fully reopened, consumers wanted to catch up on what they had missed during two years of lockdowns. But businesses couldn’t keep pace with the higher demand—especially for services.
Not helping with inflation is the recent BC government penalty on the fuel needed to heat our homes – from 7% tax to 12% tax. That is a 71% tax increase.
- Horgan raised BC’s energy taxes – gas furnaces, gas fireplaces, gas stoves… https://www.hpacmag.com/heating-plumbing-air-conditioning-general/b-c-raising-sales-tax-on-fossil-fuel-appliances-cutting-tax-on-heat-pumps/1004134028/
- And now there is the Carbon Tax on Natural gas – for the average home amounts to $227 per year. https://biv.com/article/2023/02/carbon-tax-gets-jacked-again-year
- A carbon pollution price (carbon tax) of $20 per tonne of carbon dioxide equivalent (CO2e) in 2019, rising by $10 per tonne annually to $65 per ton in 2023
= a 225% increase over 4 years.
Food prices & ? –
Mr Macklem said: “Supply chain problems were more widespread and lasted longer than e expected.”
How is the government helping?
- 30% reduction in chemical fertilizers https://www.bizpacreview.com/2022/07/24/justin-trudeau-proceeds-with-cap-on-fertilizer-use-despite-risk-of-food-shortages-bankrupt-farmers-1265443/
- In Sri Lanka when that government banned chemical fertilizers “One-third of Sri Lanka’s farm lands were dormant in 2021 due to the fertilizer ban. Over 90 percent of Sri Lanka’s farmers had used chemical fertilizers before they were banned. After they were banned, an astonishing 85 percent experienced crop losses. Rice production fell 20 percent and prices skyrocketed 50 percent in just six months. “
- Or the Ontario government forcing the dumping of milk over the government quota amount. https://catalyst.independent.org/2023/02/07/farmer-dump-milk-canadian/
- More to come this year? Bird flu culling?
Gasoline Prices;
Mr Macklem says;“Russia invaded Ukraine, causing the prices of oil and some agricultural products to rise around the world”. But….
- 78 cents per litre is tax. (which includes 2 provincial carbon taxes amounting to 31 cents / litre). 47% of the price you pay at the pump is Tax.
- In February 2018 – regular gas was $1.44 per litre. For most of 2022 the price per litre was $1.90 to $2.04 – a 39% increase from 2018.
- Canada’s Oil reserves (168 Billion barrels) accounts for 75% of North America’s reserves which is 188 times our annual consumption.
- Canada holds 170,863,000,000 barrels of proven oil reserves as of 2016, ranking 3rd in the world and accounting for about 10.4% of the world’s total oil reserves of
1,650,585,140,000 barrels.
- Canada has proven reserves equivalent to 188.3 times its annual consumption.
What about the impact of Government debt on inflation.
- Financial Post says Canada leads the world in debt. Canada accumulates $75 million per day in interest charges alone.
- BC’s debt is $98 Billion. Canada’s Federal debt is $1.2 Trillion
- Moreover, the federal and provincial governments are on track to have collectively accumulated $395.9 billion (inflation-adjusted) in total net debt between 2019/20 and 2022/23, an increase of 23.4%.
- The interest we pay on that debt amounts to just over 2% , so Canada is paying an extra $7.9 BILLION in interest in 4 years = almost $2 billion per year in interest!
- During the 2015 federal election that brought him to power, Trudeau promised three years of “modest deficits” — $9.9 billion in 2016, $9.5 billion in 2017, $5.7 billion in 2018 — and a balanced budget with a $1 billion surplus in 2019.
- Instead, he delivered annual deficits of $19 billion in both 2016 and 2017, $14 billion in 2018 and $39.4 billion in 2019 — all before the pandemic hit in early 2020.
- Canada’s combined federal debt — the total of all previous deficits plus interest — went over $1 trillion for the first time in 2020-21 during the first year of the pandemic and is now projected to increase to $1.36 trillion by 2026-27
And while the government debt is not part of the Basket of Goods used to calculate the Consumer Price Index (i.e. inflation), it nonetheless has a major impact on the purchasing power of our dollar. Consider this;
- The Canadian dollar has lost 96% its value since 1915 (up to January 13, 2022)
- $100 in 1915 is equivalent in purchasing power to about $2,467.68 today, an increase of $2,367.68 over 108 years. The dollar had an average inflation rate of 3.01% per year between 1915 and today, producing a cumulative price increase of 2,367.68%.
- This means that today’s prices are 24.68 times as high as average prices since 1915, according to Statistics Canada consumer price index. A dollar today only buys 4.052% of what it could buy back then. So that $7 head of lettuce today would have been 28 cents in 1915.
- https://www.in2013dollars.com/Canada-inflation
Will inflation come down?
We will know more when The Bank of Canada meets March 8, 2023 for the next interest rate decision.