The last four-plus years have been a rollercoaster for millions of Canadians. The pandemic, which began in early 2020, quickly led to mass layoffs (most temporary) and widespread disruptions to normal life. This was accompanied by hiccups in often-fragile global supply chains, subsequently aggravated by the Russia-Ukraine war. In response to these developments, governments and central banks provided unprecedented amounts of fiscal and monetary “stimulus” over the course of 2020-21.

All of this set the stage for skyrocketing inflation and a cost-of-living crisis in many countries. As in most peer jurisdictions, inflation and living costs jumped in Canada, beginning in late-2021 and accelerating throughout 2022. Faced with the highest inflation in four decades, the Bank of Canada belatedly responded with dramatic interest rate hikes in 2022 and the first half of 2023. The central bank’s abrupt shift to a restrictive monetary policy pummelled the economy by dampening private-sector spending and real estate activity. Economic growth slowed to a crawl in 2023 and has continued to lag in 2024. The labour market has also softened, with job growth slowing and the unemployment rate rising.

The good news is that victory is in sight for the Bank of Canada’s quest to bring inflation back to its official 2 per cent target. In recent months, year-over-year increases in the overall Consumer Price Index (CPI), which measures prices for goods and services, have been running comfortably below 3 per cent compared to close to 7 per cent a couple of years ago, and inflation slowed to 2.5 per cent in July. With inflation mostly tamed, the central bank has started to lower its short-term policy interest rate, from 5 per cent in May 2024 to 4.5 per cent today. Further cuts are expected.

It's worth summarizing how the inflation “scare” has affected the prices Canadians now pay for goods and services.

From January 2020 to June 2024, cumulative inflation amounted to 18 per cent. This captures the combined increase in prices for the hundreds of individual items in the CPI. The price of “shelter” has risen faster than prices in general. Since January 2020, the shelter component of the CPI has climbed by one-quarter. Shelter costs include rents, mortgage payments, residential fuel, electricity and water charges.

Food prices have also been on a tear. Since January 2020, the food component of the Consumer Price Index has increased by 24 per cent. According to the latest Canadian inflation report, food inflation has dropped to 2.4 per cent on a year-over-year basis, but consumers are still struggling with sticker shock at the grocery store.

The cost of transportation—a category which includes gasoline—has also marched higher, up by more than one-fifth since early 2020.

It’s clear many Canadians have been hurt by the 2021-24 inflation surge. A Statistics Canada survey conducted a few months ago found that 45 per cent of respondents reported difficulty meeting day-to-day expenses, a far bigger share than two years earlier. Those on fixed incomes and younger people striving to form separate households have been hardest hit. Meanwhile, workers whose pay hasn’t kept pace with above-normal inflation have seen their purchasing power diminish. All of this has soured the public mood and put incumbent governments on the defensive.

Fortunately, the evidence suggests that inflation will soon return to the official 2 per cent target. This should ease recent cost-of-living pressures and help bolster flagging consumer and business confidence in Canada. It can’t happen soon enough.