What Canada’s record inflation means for your budget, why it’s happening, where you’ll feel it — and what’s to come

This may not come as a surprise, but it will worry most Canadians: inflation is at its highest level since 1991, hitting 6.7 per cent in March as the cost of food and gas soared.

As the war in Ukraine rages on and supply chain issues persist, prices at the gas pump rose 39.8 per cent compared to March 2021. Month over month, prices rose by almost 12 per cent. According to Statistics Canada, without the rise in gas prices, March's inflation rate would have been 5.5 per cent instead of 6.7 per cent.

What's going up in price fastest, and why?

The war is to blame for the rising costs of gas and food, according to Statistics Canada. Grocery store prices rose 8.7 per cent compared to March 2021, in part driven by the largest annual increases in dairy and egg prices since 1983. Prices of cereal rose at the fastest annual pace since 1990, at 12.3 per cent. The price of pasta went up almost 18 per cent year over year. Russia and Ukraine are both major global wheat exporters.

Meat products in particular have been affected by supply chain issues, said the Maconald-Laurier Institute's Aaron Wudrick, going up 10.5 per cent year over year - vegetarians and vegans will have something to brag about in 2022 while everyone else tries to cut costs at the meat counter. Beef in particular has gone up by more than 14 per cent, while ham and bacon have gone up 15 per cent.

Butter has gone up 16 per cent, but the usual replacement for it, margarine, has gone up by almost 28 per cent.

Rising gas prices make life more expensive all around, said Wudrick - not only do you see their effect daily at the pump, they also increase the cost of transportation, making food and other goods more expensive as the weeks and months wear on.

Eventually, prices are gonna have to creep up," he said.

The rise in gas prices has been mainly driven by the events of the past three months, said David Macdonald, senior economist for the Canadian Centre for Policy Alternatives. If the war in Ukraine and supply chain issues continue, gas prices are likely to stay high, he said.

What's the Bank of Canada doing to slow this train?

The Bank of Canada has been trying to keep up, raising its key policy rate by three-quarters of a percentage point since the year began in an effort to calm the waters. The bank is widely expected to keep raising that rate as the year progresses.

And as interest rates rise, Canada is approaching a tipping point in its housing market, said Wudrick - those who own homes will feel the pinch, but those who want to own homes will be clamouring for policies that cool the real estate frenzy.

There has to be a reckoning at some point," said Wudrick.

The only question, he said, is how quickly or slowly that reckoning arrives.

The Bank of Canada's next rate hike will give us a better sense of the institution's outlook, said Wudrick - another 0.5 per cent increase will signal an urgency to get inflation under control.

Is the rate hike even doing anything?

We won't know the wider effects of the latest rate hike for another month or so, said Macdonald, noting that the consumer price data released Wednesday was gathered before the Bank of Canada raised its key rate to one per cent.

However, he warned that the rate hike isn't going to fix your grocery woes anytime soon.

Its most immediate impact will be on housing prices, he said - the Bank of Canada's interest rate doesn't have much to do with gas or food prices, at least not directly.

It's going to have no impact on the price of gasoline, it's going to have no impact on food prices, particularly in the short term," he said.

Instead, the bank is trying to balance things out over the longer term through higher borrowing costs and cooling real estate prices, among other factors, said Macdonald.

You might want a decrease in prices, but you might not like how it happens."

What else is getting more expensive?

Prices of other goods also rose in March. For example, prices for passenger vehicles were up seven per cent, and furniture prices were up almost 14 per cent.

If you own a pet, costs for food and supplies have gone up by almost 10 per cent.

And as Canadians start going out again, the price of those experiences is also going up, with restaurant costs rising 5.4 per cent year over year.

The transportation industry's prices might rise a little slower, with airline and travel companies choosing to take a cut right now to avoid sticker shock from returning customers, said Wudrick. As Canadians start travelling again, a significantly higher airplane ticket price, for example, might make them think twice - and after the losses the airline industry took during the last two years, it needs all the customers it can get.

Macdonald expects the costs of travel to increase going into the summer, however, if gas prices stay high.

But hey, if you're stressed about all of this - the cost of recreational cannabis has actually gone down by more than eight per cent.

Thanks for all the percentages, but what does this look like in real life?

Let's say you like to buy bacon for breakfast. A package that cost $7.99 a year ago is now likely more than $9.

Or how about cheese for your sandwiches? That's gone up more than 10 per cent. What was once a $7 block of marble would now be approaching $8.

Like milk in your coffee? Maybe it's time to try it black. The cost of milk has gone up 7.7 per cent. If you were spending $12 a week on milk, you'll now spend closer to $13. Same with sugar, which along with syrup has gone up more than 20 per cent. Coffee itself has gone up more than 10 per cent, too.

As for gas, if it cost you $60 to fill up your tank a year ago, now you're looking at more than $80.

Will my wages ever catch up?

Wages generally lag behind inflation, so consumers will notice these increases eating into their purchasing power; in March, average hourly wages were up by 3.4 per cent.

Though some may take this opportunity to buy certain goods or stock up on food before prices continue to rise, many will tighten their purse strings, said Wudrick.

That means your salary won't stretch as far, so budget and save where you can, said Wudrick. And buckle in - this roller-coaster is going up for the foreseeable future.

With files from The Canadian Press