High Inflation in 2022 in Canada: Demand–pull or supply–push?

Weimin Wang

Economic and Social Reports from Statistics Canada, Analytical Studies and Modelling Branch

Abstract: This article examines whether the high inflation in 2022 in Canada was demand–pull or supply–push. It finds that at the aggregate level, Canada’s household final consumption expenditure grew at a much higher rate than gross domestic product from early 2021 to mid 2022 and that headline inflation accelerated during this period. These findings suggest that the aggregate excess demand for consumption and high inflation in 2022 were highly related. This article also decomposes inflation in the price of household final consumption into the contributions by detailed products consumed. It finds that both demand and supply shocks are important contributors, with increasing contributions from the supply side until the fourth quarter of 2022. This is consistent with findings by Chen and Tombe (2023) and Wang (2023). From 2021 to 2022, quarterly inflation in household final consumption expenditure averaged 5.99%, of which 54.0%, 23.7% and 22.3% are attributed to the product-specific supply shock, the product-specific demand shock and the aggregate demand shock, respectively. In terms of contributions by product, food and fuels and lubricants had much larger contributions than all other products. Also, pent-up demand following the easing of public health restrictions in early 2022 led to a growing demand and higher prices for travel and recreation-related services. In addition, paid rental fees for housing contributed significantly to the high inflation in all four quarters of 2022. These top contributors are mostly essential goods and services, implying that many households could not afford to keep up their consumption of essential goods and services during the high inflation period.

Keywords: inflation; demand-pull; supply-pull; consumption expenditure (search for similar items in EconPapers)
JEL-codes: J23 M21 (search for similar items in EconPapers)
Date: 2024-05-22
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Persistent link: https://EconPapers.repec.org/RePEc:stc:stcp8e:202400500005e

DOI: 10.25318/36280001202400500005-eng

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