Inflation is hitting record highs, interest rates are climbing faster than in a long time, labour is in short supply, supply chains are jammed. Businesses and not a small number of families across North America are getting squeezed. And it is going to get a lot tighter.

Just a few months ago, things were looking decidedly up. The pandemic was becoming a low background hum. Business activity was rebounding. Cafes and restaurants were beginning to fill up again. Travel, missed by many, had become a real possibility. And all this on top of the realisation that the economies and businesses of Canada and the US had proven surprisingly resilient.

Not all businesses made it through the pandemic, but many did, and households seemed to be coming out the other side of two years of masks, vaccines and working from home in remarkably strong shape.

Sudden shift

As was noted in this very space a few months ago, Canada’s household savings at the end of 2021 were higher than ever, thanks to the mix of government support, cheap money and fewer things to spend on. On top of that, home owners saw their property values vault higher. That was then.


Alfred Romann is a business journalist and economist specialising in the Americas and Asia

The positivity has come off a lot faster than the face masks

The positivity has come off a lot faster than the face masks. There is a general feeling that things will get more difficult. In Canada, even real estate markets have wobbled. The shift in outlook happened slowly and then suddenly it gained pace.

What changed? For a start, everything is much more expensive. It’s not just milk or vegetables but also utilities, clothes, appliances, cars, airfares and, most noticeably, petrol. Last year, people followed the number of new daily cases of Covid-19 with feverish dedication. Now, everyone follows the rise and very occasional falls in the price of gasoline.

Across the US, the price of regular petrol hit US$6 per gallon (US$1.50 per litre) for the first time ever in early June. In Vancouver, which has the most expensive gasoline in North America, the price of a litre of regular has not fallen below CA$2.30 (US$1.80) for weeks and some seem to be bracing for CA$3, farfetched as that may once have seemed.

Aggressive increases

And then, the cost of money has been going up. People and businesses with variable rate loans and mortgages are already having to pay more every month. Both the Federal Reserve Bank in the US and the Bank of Canada (BoC) plan to continue increasing their reference rates more aggressively over the next few months in an attempt – unsuccessful so far – to tame inflation.

On 1 June, the BoC raised its benchmark interest rate to 1.5%. The latest hike of half a percentage point surprised nobody after inflation touched 6.8% in April, more than twice the target rate. Inflation before the pandemic was 1.75%. In the US, inflation hit a 40-year-high of 8.6% in May.

This may be one of those times that test theories

All things being equal, central banks raise rates when inflation rises. The theory is that people and businesses will borrow less, there will be less cash floating around, and demand for goods and services will slow down, putting downward pressure on prices.

The problem, of course, is that this may be one of those times that test theories. Making money more expensive may help tamp down inflation, but prices are not likely to really drop as long as a big chunk of the world’s grain remains locked up in Ukraine or 10% of the world’s oil that comes out of Russia remains out of bounds.

Higher interest rates may help or they may just make things more expensive, especially goods and services supplied by companies that live or die by financing, like tech or biotech startups, small and medium-sized businesses.

More intense

There is another wrench in the works this time around. Labour markets are tight. The Great Resignation during the pandemic means businesses have to make do with fewer, and more expensive, staff.

Every bit of economic news now suggests that all these pressures will get more intense in the short term. Prices will keep going up. Interest rates will keep rising. Labour markets will stay tight. The first to take a hit have been families and businesses with variable rate loans and mortgages, many of whom took those loans in the early days of the pandemic to stay afloat.

By all accounts, things will get worse before they get better. Here’s looking at you, 2023.