"The Bank of Canada will increase rates within a year,” says TD financial analyst

Canada's recently announced annual inflation rate of 4.4 per cent may be a cause of concern for Canadians barely making ends meet. And although gasoline accounts for one-fifth of that inflation, shelter and food also saw similar high rates of inflation on their own.

"In general, inflation occurs when there is a shortage of goods relative to demand," said James McNeil, an Assistant Professor at Dalhousie University who specializes in Macroeconomics.

"COVID has made it harder to produce products because many factories are working at partial capacity to meet new safety measures. All of this has meant it is harder to purchase goods manufactured in different countries and get them here to Canada," he added.

The rate of 4.4 per cent is the highest since the late 2000s. But much short of the peaks of the 1970s, which topped out around 12 per cent. After multiple decades of those fast-rising prices, the Bank of Canada changed the metrics trajectory.

"The Bank of Canada began aggressively targeting an inflation rate of 2% in the early 1990s. Once it committed to that, actual inflation fell in line pretty quickly, but at the cost of a pretty deep recession," McNeil said.

Despite a meek comparison to the inflation of previous generations, some experts in the financial field are not predicting the current inflation rise is going to blow over.

"I do not believe we will recover quickly enough from the pandemic, and the Bank of Canada will increase rates within a year," said Mark Grant, a Senior Financial Analyst at the Toronto-Dominion Bank.

"If (New Brunswick's) vaccination rates are not enough to control the spread and many other countries that we import from have vaccination rates lower than ours, I foresee the supply issues extending, therefore continually pushing inflation," he added.

Grant is expecting to complete the Chattered Professional Accounted program next year to compliment his master's degree in economics. McNeil shares his bleak outlook for interest rates.

"Just yesterday (the Bank of Canada) announced the end of one part of their monetary stimulus, the purchase of government bonds, sometimes called Quantitative Easing," he said.

"(The Bank of Canada) also moved up their projections for when they think interest rates will start rising. I think that signals that the Bank of Canada is taking the issue seriously and no longer views the high inflation rates we've seen as purely temporary," he added.

The conditions of a Canada with a higher interests rate depend on how high they go. But Grant feels they will be raised high enough to recommend saving more broadly.

"As interest rates increase, the cost of loans, mortgages increase and the return on investing increases. This can be a good time to save up for a future purchase when lower interest rates. For those that already have debt, interest rate hikes can be costly…."

One question remains whether or not children becoming vaccinated decreases hospitalizations and deaths to the point of no longer requiring the COVID protocols behind the supply chain crunch, which is mainly because of the lower vaccination rates in Canada's biggest trading partner, the United States.

The current interest rate of 0.25 percent pales compared to the 1.75 percent rate that existed before the COVID-19 pandemic began.