The Bank of Canada announced on Wednesday a drastic increase in the key rate of 1% in an attempt to curb inflation. This now stands at 2.5%.

• Read also: Here's how the increase in the key rate could affect your finances

• Read also: The housing bill could skyrocket in Quebec

• Read also: The median price of a house jumps by 20%

The Bank acknowledges that inflation in the country is “higher and more persistent” than it forecast last April, when it is expected to average 8% in the second and third quarters of this year.

“While global factors like the war in Ukraine and continued supply disruptions have been the main drivers of inflation, domestic price pressures from excess demand are gaining in importance,” the institution explained. in a press release.

Despite this very sharp rise, the Bank had announced its colors in recent months. During the 0.5% increase announced in early June, she said she was ready to “act more forcefully” if inflation persisted.

Inflation becomes widespread

Rising prices are impacting the daily lives of Canadians and are now noticeable on a large portion of the grocery basket.

Indeed, the Bank notes that “more than half of the components of the consumer price index now show an increase of more than 5%”.

The United States announced on Wednesday that inflation had reached 9.1% in June, the worst increase in consumer prices since 1981. For its part, the Chinese economy is experiencing a slowdown due to the management of the pandemic by Beijing.

But unemployment at rock bottom

Although the global context plays a leading role in prices, the Bank of Canada economists have focused their analysis on the domestic context, marked by an unemployment rate at a historic low combined with an increase in the consumption.

“Due to strong consumer demand, businesses are passing on their higher input and labor costs to their selling prices,” the Bank explains.