Inflation in Canada

A short history of inflation in Canada

War and Deflation (1914 to 1933)

Canadian prices rose 21.6% in the year to June 1920, the war having been financed by borrowing and by an economy turned over to producing things that were then destroyed. They then fell almost 18% in the deflation of 1921, and fell again through the early 1930s. A generation learned that prices could move violently in both directions, and the Bank of Canada was founded in 1934 partly in response to that experience.

Inflation Targeting (1991 onwards)

Inflation returned with the 1970s oil shocks and was brought down in the 1980s at the cost of a severe recession. In February 1991 Canada became the second country in the world to adopt an explicit inflation target, a year after New Zealand, and has renewed the agreement with the government every five years since.

Post-Covid Inflation (2021 to 2023)

In Canada, prices rose fastest in June 2022, at 8.1%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.