Canada’s Inflation Will Reach New Heights In 2022 Before Dipping By Year’s End

RSM Canada, a leading global provider of audit, tax and consulting services focused on middle market businesses, today launched its first 2022 edition of “The Real Economy, Canada“ – a quarterly report that provides Canadian businesses with economic analysis and insights into factors driving growth, or economic headwinds, in Canada’s middle market.

With supply chain and labour market constraints further complicating Canada’s uneven economic recovery, the first edition of this year’s ‘The Real Economy, Canada‘ report examines to what extent inflation will hit the wallets of Canadians in 2022, and what looks like to be a strong year of economic growth as demand at home and aboard remain robust.

The report also shines a light on how Canada’s food supply chain has been impacted by – and can transition from – the COVID-19 pandemic, as well as what’s in store for priority industries such as energy, real estate, and telecommunications.

Key findings in this quarter’s report include:

Inflation will hit five per cent in 2022 before approaching three per cent by the year’s end

• Persistent inflation is primarily due to supply constraints and surging demand, and is being largely driven by volatile sectors like gasoline, food, shelter utilities and transportation.
• While inflation remains a primary risk to growth and can lead to rising wages, which further increases businesses’ cost of operation, it is projected to dip back towards the 2 per cent target near the end of 2022.
• Resolving supply chain disruptions will largely depend on increased energy production, higher vaccination rates in global manufacturing hubs and addressing supply chain labour shortages.
• A continued trucker shortage could further strain Canada’s food supply chain, causing food prices to continue to outpace core inflation.

The labour market remains a drag on the trajectory of Canada’s otherwise steady economic recovery

• The job market will continue to contend with the dual challenges of a tight labour market and high long-term unemployment, as the unemployment rate declines to just above 6 per cent.
• Canada is struggling to address its aging workforce after the pandemic-induced border shutdown cut the country off from a steady supply of immigrant labour. With immigration projected to increase in 2022, the labour market could see some easing.
• Unemployment remains above pre-pandemic levels because of a skills mismatch, with those with at least postsecondary education benefiting the most. At the same time, the number of jobs for those without a postsecondary education have yet to return to pre-pandemic levels.
• Labour gains over the past two years have been entirely in sectors that utilized remote work, with professional services jobs jumping nearly 10 per cent, outpacing any other sector.

Strong oil and gas demand will provide Alberta with a much-needed boost in economic growth

• Canada’s energy industry will continue to ride its 2021 wave, with forecasts of record oil production this year.
• Global oil demand is forecasted to increase by 3.3 million barrels per day this year to pre-pandemic levels of 99.5 million barrels, increasing demand for Canadian supply.
• The estimated 7,000 new jobs that Canada will see from new drilling operations may exacerbate the skilled labour shortage that the oilfield services sector has been experiencing, with increased wages not being sufficient to attract a younger generation valuing greater work-life balance.
• Regulatory risks remain a concern for the oil industry, with cross-border tensions carrying over from 2021 due to continued U.S. efforts to shut down the Enbridge Line 5 pipeline.

Real estate sector bullish on growth prospects, though increasing material costs remain a concern

• An RSM survey of real estate executives in British Columbia found that 86 per cent are optimistic about British Columbia’s economic prospects.
• However, higher lending rates on the horizon will likely put a damper on housing transactions and growth in the broader economy.
• The same respondents cited growing costs as their biggest growth hurdle in 2021 – 11 per cent more than any other sector surveyed.
• Processes to measure environmental, social and governance investing issues will take on greater importance in the real estate and construction sectors if they wish to secure long-term financing and ongoing growth.

Greater competition may be on the horizon for Canada’s telecommunications market

• The recent surge in spectrum licenses given to smaller companies could mark the beginning of a shift for the industry’s competitive landscape.
• In a recent auction of spectrum licenses, 757 of the 1,495 licenses awarded went to small and regional providers across the country.
• Having more licenses in hand could give smaller service providers more leverage in developing more balanced partnership with the ‘Big Three’ of Rogers, Bell and Telus.
• Canadian consumers will be the beneficiaries if there are meaningful price wars down the road.

“Canada’s economy has had a bumpy ride over the past year, as the promise of mass vaccinations was followed by supply chain disruptions, a global energy crisis and rising inflation,” says Tu Nguyen, economist and ESG director with RSM Canada. “Looking ahead, we see a Canadian economy continuing to recover, even as businesses and consumers contend with challenges like the omicron variant of the coronavirus.”

Nguyen continues: “The resolution of supply chain disruptions will depend on many factors, including increasing energy production, mass vaccinations in global manufacturing hubs like Vietnam and India, resolving logistics, and addressing the shortages of important workers – like truck drivers – in the supply chain. Resolving these issues will be an important step in combating inflation both at home and abroad.”

For more information on RSM Canada’s ‘The Real Economy: Canada‘, or to download the report, please visit their webpage.

SOURCE RSM Canada