Pandemic Shifted Demand To Goods
COVID-19 caused high levels of inflation in 2021 and into 2022, says Aon’s inflation deck for Canada. The pandemic shifted demand away from services and towards goods while also disrupting global supply chains. Broad inflation is now at a 39-year high of 7.7 per cent year over year compared with an average of about two per cent in the two decades pre-COVID. Inflation is expected to moderate over the next one to two years to levels that are higher than pre-COVID years, but less than seen in 2021. Additionally, the Bank of Canada had raised interest rates by 125 basis points to 1.5 per cent and was likely to do so four more times over the course of 2022 to 3.25 per cent. Consumers expect broad inflation to be around five or six per cent over the next year, but return to pre-COVID levels in the medium term. The Bank of Canada expects high inflation to remain throughout 2022, but to ease to be around 2.5 per cent in the second half of 2023 and return to the two per cent target in 2024.