This sets the stage for how businesses will head into what the Royal Bank of Canada (RBC) predicts will be a moderate and short-lived recession in 2023.
"Canada's economic growth has fired on all cylinders following pandemic shutdowns. But a historic labour squeeze, soaring food and energy prices, and rising interest rates are now closing in. Those pressures will likely push the economy into a moderate contraction in 2023"
Canada's inflation rate hit 8.1% year-over-year in June 2022, the highest since January 1983. The spike forced central banks into aggressive action. The Bank of Canada raised its benchmark interest rate by a full percentage point to 2.5% the following month, the largest one-time increase since 1998.
And more tightening is likely on the way. In a July press conference, Bank of Canada governor Tiff Macklem didn't rule out more increases to interest rates (stating, “How high our policy rate needs to go will depend on how the economy and inflation evolves.”) and adding that the bank doesn't expect the inflation rate to come down to 3% until the end of next year, and won't get back to its 2% target until the end of 2024.
Adding to the cost pressures is one of the tightest labour markets in generations, as Canada's unemployment rate hits historic lows, holding steady at 4.9% in July.
Another wildcard are the Omicron subvariants creating uncertainty as to what the upcoming fall and winter seasons will bring in terms of lockdowns, business restrictions, and overall case counts.