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Shoppers buying groceries at the Urban Fresh Produce stand at Toronto’s St. Lawrence Market on May 18.Fred Lum/The Globe and Mail

Two months ago, Jackie Chen caused a stir in Carbonear, a town of about 5,000 in Newfoundland: He announced that Don’s Restaurant wasn’t bringing back its buffet.

At $16.99 before tax, the buffet was a popular draw in town – one that residents were eagerly awaiting the return of, owing to provincial COVID-19 restrictions that forbid buffets for two years. During much of that time, Mr. Chen, the owner of Don’s, which specializes in Chinese cuisine, had seen his food costs increase rapidly and without letting up.

So when the final rules on restaurants were lifted in March, Mr. Chen made the tough decision to keep the buffet closed. The math no longer made sense.

“If we were to open the buffet, we’d have to raise the price almost double or possibly even triple,” said Mr. Chen, who recently hiked most of his menu prices by $2 a dish.

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The situation at Don’s is just one example of how life is changing in this era of high inflation. Similar stories can be found anywhere in the country. Once a fringe topic, inflation is now a dominant theme of discussion – on AM radio, in the grocery aisle and over the bargaining table.

That’s a noted departure. For decades, consumer prices have grown at generally low and stable rates in Canada, along with other advanced economies. If policy makers complained of anything, it was often that inflation was too low.

Not any more. In April, the annual rate of inflation hit 6.8 per cent, the highest since 1991. Many economists say that, because of the recent surge in gas prices, inflation could climb above 7 per cent soon, which would be the highest in nearly four decades. The last time it was that high, another Trudeau was prime minister and Duran Duran topped the Canadian charts.

The trouble is not only that inflation is high, but that it’s pervasive. About 70 per cent of the products and services that make up the Consumer Price Index (CPI) – the country’s main gauge of inflation – are rising by more than 3 per cent annually, making it tougher to avoid rising prices. Moreover, the reminders of steep inflation are relentless, particularly at gas stations and supermarkets, venues of frequent purchases.

Those descriptions of inflation – high, pervasive and frequent – are a dangerous mix for the economy, and particularly for the Bank of Canada. Central bankers are trying to raise interest rates enough to quell inflation, but without sending the economy into a painful downturn. It is, however, a tough feat to pull off.

“Historically, soft landings have been very hard to engineer,” Michael Weber, an associate professor at the University of Chicago’s Booth School of Business, said in an interview. “I think it’s actually very unlikely that we’ll see inflation decreasing to a target rate of around 2 per cent without having a recession. I think it’s almost impossible.”

Even without a recession, people are making adjustments to their lives.

Rebecca Bradley of Victoria spends around $200 to fill up her Dodge Durango, which she uses to make food deliveries for a delivery app. The exorbitant cost of gasoline – locally, it’s jumped to around $2.30 a litre for regular unleaded – eats into her take-home pay. “It’s almost like you’re hardly even making a wage,” she said.

A mother of three, Ms. Bradley is mindful of wasting money. She makes sure to freeze leftovers or fruit that’s ripened. And for dinner, it’s usually a home-cooked meal. “We rarely get takeout any more. We just can’t afford it,” she said.

Over in Prince Edward Island, inflation is running especially high. The province’s CPI grew 8.9 per cent in April from a year earlier, well clear of New Brunswick, the next highest province at 7.6 per cent.

Susan Marie, a photographer on the island, used to buy specific treats for her dog for $6.99. Now they cost $12.99. (“I’m gonna buy them because she loves them, she’s a senior [and] she deserves it.”) And because of steeper gas prices, Ms. Marie is making fewer trips to the beach, a 25-minute drive from her place in Charlottetown.

“I lived in Calgary for nine years, and I was used to paying city prices,” she said. “We’re paying more now” on the island, “for our gas, for our food, for our living expenses.”

Those two items – gasoline and groceries – weigh heavily on consumer psychology. Many people buy them frequently, which filters into their expectations of future inflation, according to a vast body of economic studies. Consumers also tend to notice price hikes more than cuts.

Lately, they’ve had plenty to notice. Grocery prices jumped by nearly 10 per cent in April, the largest annual increase since 1981. And this week, the average price of regular unleaded gasoline surpassed $2 a litre for the first time.

Inflation expectations are important. Workers negotiate wages and businesses set prices, respectively, based on their views of future costs. In that sense, inflation can be self-fulfilling.

Based on its surveys of consumers and businesses, the Bank of Canada has found that inflation expectations for the next two years are elevated, but remain “well anchored” over a five-year window. That could change.

“Unfortunately, with grain and energy prices pushing higher, we likely haven’t seen peak food inflation yet,” said Benjamin Reitzes, a rates strategist at Bank of Montreal, in a recent note to clients. “Combined with the surge in gasoline prices, there’s a real risk that inflation expectations become unanchored.”

In that scenario, the Bank of Canada would have to raise interest rates aggressively – perhaps above 3 per cent – to bring expectations back to earth. (Its policy rate is currently at 1 per cent, and financial analysts widely expect the rate to hit 1.5 per cent on June 1.)

The collateral damage could be significant for lower-income households, which have fewer savings – if any – and spend a greater proportion of their income on debt payments.

Neil Hetherington, the chief executive officer of the Daily Bread Food Bank in Toronto, can already see the strain.

In March of 2019, the food bank had roughly 60,000 client visits. This past March, visits had soared to 160,000. The numbers are “absolutely dismal,” said Mr. Hetherington, who attributes the surge partly to rising inflation.

In turn, that’s driving up the cost of operations. Prior to the pandemic, the annual food budget for Daily Bread was around $1.5-million. Mr. Hetherington estimates that food costs will hit $10-million in the coming fiscal year.

“It’s just not getting better, despite the economy opening up,” he said.

Ron Kneebone and Margarita Wilkins, researchers at the University of Calgary’s School of Public Policy, have studied some of the factors that influence visits to food banks, focusing specifically on Daily Bread and social conditions in Toronto. In a recently published paper, they found that food-bank visits rose with increases in rent, and with reductions in the minimum wage and disability benefits, after accounting for inflation.

On those fronts, current circumstances are challenging. Rents have jumped 4.5 per cent over the past year, with larger increases in Ontario (5.3 per cent) and British Columbia (6.4 per cent). Average wages aren’t climbing at the same pace as inflation, leaving millions of workers with a decrease in purchasing power. And lacklustre benefits via social-assistance programs have emerged this spring as an election issue in Ontario.

“We know that there is, essentially, a tidal wave of various factors that are all resulting in these extraordinary numbers coming to food banks,” Mr. Hetherington said.

How this all shakes out is tough to predict. Royce Mendes, head of macro strategy at Desjardins Securities, suspects the interest-rate hikes will cool demand and that global inflationary pressures will settle down.

However, “the conviction that I have in that base case is not very high,” he added.

The risks are twofold, Mr. Mendes said. On one hand, it’s possible that inflation stays high if people continue to spend heavily, particularly those households that accumulated vast savings during the pandemic. That would force central banks to raise rates aggressively. On the other hand, it’s possible that the inflationary surge is hurting people and companies so much that, even without many more rate hikes, the economy takes a dive into recession.

“Every day, there is new conflicting data,” Mr. Mendes said. “We don’t know – and we probably won’t know for another few months – which direction the economy is headed down.”

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