Employers are continuing to feel the squeeze, with rising prices set to push wages higher this year in a “feedback loop building” as the annual pace of inflation climbed in December 2021 to its highest rate since September 1991.

In December, the consumer price index was up 4.8 per cent, compared with a year ago, reported Statistics Canada on Wednesday. The reading compared with a year-over-year increase of 4.7 per cent in November 2021, noted the agency.

December marked nine months in a row that headline inflation has come in above the Bank of Canada’s target zone of between one and three per cent. The country hasn’t seen a streak that long since before the central bank began targeting inflation at two per cent in the midpoint of its comfort range.

Read: Wages set to rise 2.7% in 2022 as inflation hits new high, says survey

Adding to inflation pressures are plans from a strong majority of employers to raise wages at a faster rate over the next 12 months, pointing to the need to compete for talent amid growing labour shortages across regions and sectors. The bank’s survey report noted that cost-of-living increases are also increasingly driving wage pressures, raising the possibility of a cycle of price and wage increases. Inflation has been impacting wage increases for months, with experts suggesting various ways employers can support employees through this time.

“Higher inflation is driving higher wages, which is driving price hikes and then we’re back to inflation,” wrote Benjamin Retizes, the Bank of Montreal’s managing director of Canadian rates. “The Bank of Canada cannot be comfortable seeing this feedback loop building.”

With the annual pace of inflation continuing to reach new heights not seen in decades, both employers and employees are worrying that price increases have gone from a short-term blip to a longer-term problem, according to recent surveys by the Bank of Canada.

Read: How employers can solve the inflation puzzle amid war for talent

Canada’s central bank says businesses and consumers are increasingly convinced that the pace of price increases will continue for the foreseeable future. Its pair of quarterly surveys of businesses and consumers showed respondents expect the annual rate of inflation to remain above the Bank of Canada’s two per cent target for the rest of the year.

Two-thirds of the firms that took part in the bank’s business outlook survey anticipated inflation will stay above three per cent over the next two years. While respondents in the survey of consumer expectations said they expect inflation to remain above four per cent for the next two years, up from readings in the survey from the previous quarter. Longer-term expectations stayed relatively steady around 3.5 per cent five years out.

For consumers, inflation has become what the central bank describes as the most important economic issue, more so than taxes and jobs. “Canadians are clearly becoming more concerned about inflation, anticipating prices to remain elevated over the next two years,” says Ksenia Bushmeneva, an economist with the Toronto-Dominion Bank.

Read: How employers can tweak benefits offerings amid rising inflation

The consumer survey also suggested that Canadians doubt policy-makers can easily rein in elevated inflation rates, with two-thirds of respondents saying it’s more difficult now to control inflation than it was before the coronavirus pandemic.

The survey of firms and consumers took place before the country saw a rapid rise in coronavirus cases, which has resulted in new economic restrictions to slow the spread of the fast-moving Omicron variant. Avery Shenfeld, the Canadian Imperial Bank of Commerce’s chief economist, wrote in a note that a similar survey done now would likely knock back some optimism firms expressed in late November 2021, “but inflation expectations would no doubt remain elevated.”

The Bank of Canada is scheduled to make an announcement next week about its key policy rate and provide an updated economic outlook. Senior bank officials have previously said they’re keeping a close eye on expectations to see if Canadians start to believe that temporary issues driving inflation become permanent drivers of price growth.

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