Inflation to reach new heights before dipping

Among the key findings of RSM Canada’s first 2022 edition of The Real Economy, Canada is that inflation will hit five per cent in 2022 before approaching three per cent by the year’s end.

The report from RSM, a global provider of audit, tax and consulting services focused on middle market businesses, provides a quarterly look at 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 publication examines the extent to which inflation will hit the wallets of Canadians, in what the report authors say looks to be a strong year of economic growth as demand at home and aboard remain robust.

The report shines a light on how Canada’s 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.

It finds that 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. Inflation, it says, remains a primary risk to growth and can lead to rising wages, which further increases businesses’ costs of operation.

Resolving supply chain disruptions will largely depend on increased energy production, higher vaccination rates in global manufacturing hubs and addressing supply chain labour shortages.

In the year ahead, the job market is expected to 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 six per cent.

And while 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.

Looking at the real estate sector, report authors are bullish on growth prospects, though increasing material costs remain a concern. There is some concern, however, that higher lending rates on the horizon will likely put a damper on housing transactions and growth in the broader economy.

“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.”

www.rsmcanada.com