Rapidly increasing shelter costs, removed affordability measures give Alberta highest annual inflation rate in Canada

Despite experiencing inflation in certain areas like shelter costs, one economist said Alberta’s inflation rate ‘is moving in the right direction’

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Ballooning shelter costs and the lifting of two affordability measures last year have temporarily caused Alberta to have the highest annual inflation rate in the country — though the province should fall in line with the rest of Canada in the coming months, an economist says.

The province’s consumer price index (CPI), the measurement used to describe to inflation, rose 4.2 per cent over the past 12 months, according to Statistics Canada data published Tuesday.

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That places Alberta well above the 2.8 per cent national average, with the second-highest province, Quebec, at 3.3 per cent.

Alberta’s gap on the rest of Canada is largely due to the reintroduction of the provincial gas tax alongside the end of an electricity rate cap and skyrocketing power rates that lasted through summer 2023, said Mark Parsons, vice-president and chief economist at ATB Financial.

However, the gas tax’s return is effectively returning the province to where it was before the tax holiday was implemented.

“We do expect (inflation) to come down from current readings,” Parsons said.

Through the first three months of 2023, Albertans on a regulated rate option (RRO) electricity plan had their rate capped at 13.5 cents per kilowatt-hour, while the province provided $200 in rebates to residential customers. Since the program ended, electricity customers on RRO plans have experienced sky-high electricity bills — though the RRO has returned to normalcy in recent months. Parsons said electricity rates shouldn’t contribute to Alberta’s inflation in 2024.

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The rebates were also included in StatCan’s readings for last year’s electricity costs.

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In January, meanwhile, Alberta reintroduced its provincial gas tax, which had been paused by the UCP government for 2023 as an affordability measure. The tax added nine cents per litre starting Jan. 1, and is expected to increase to 13 cents next month.

The tax is designed to provide a buffer to provincial coffers when the price of oil dips, and is conversely reduced when oil prices rise above certain thresholds.

ATB is projecting inflation in Alberta to hover around three per cent for 2024, Parsons said. Removing energy and food from Alberta’s CPI calculations brings the province closer to the national average, he added.

Even so, consumers are still feeling the pinch after several years of surging inflation. The average inflation rate in 2022 was 6.4 per cent, peaking around eight per cent in mid-2022. That has accumulated into price levels increasing 14 per cent between January 2021 and now, Parsons said.

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“That’s what Albertans are feeling. They’ve just seen prices go up so much,” he said. “But what’s happening is the rate of price growth is declining overall . . . We’re moving in the right direction.”

Mark Parsons
Mark Parsons, Vice President and Chief Economist, ATB during the 2024 Economic Outlook event at the Telus Convention Centre in Calgary on Wednesday, November 1, 2023. Darren Makowichuk/Postmedia

As shelter costs increase, Alberta’s population expected to grow

Shelter costs remain the outlier across Canada, increasing 6.5 per cent over the past year. Shelter costs in Alberta have increased by nearly double that, rising 12 per cent since this time last year. Those increases were due to increases in natural gas costs (15 per cent), higher electricity costs (113 per cent) an increase in rent (14 per cent), and owned accommodation costs such as property taxes and mortgages (eight per cent), Charles St-Arnaud, chief economist at Alberta Central, said in an email.

St-Arnaud wrote that shelter costs contributed 3.3 percentage points to Alberta’s inflation rate.

Meanwhile, some economists are predicting higher migration to Alberta than initially signalled. The Conference Board of Canada said Wednesday it’s forecasting Alberta’s population to increase by 4.1 per cent this year, while ATB is expecting around 3.4 per cent population growth. (In December, ATB forecasted 2.5 per cent growth.)

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Alberta had posted 4.3 per cent annual population growth as of the third quarter of 2023 — the highest it’s seen since the early 1980s.

At the same time, Alberta is still struggling to build enough homes to keep pace. ATB said the construction industry is running “near capacity” while posting housing-start numbers not seen in a decade.

Homes in Calgary
Homes on the northern edge of Calgary were photographed on Tuesday, December 19, 2023. Gavin Young/Postmedia

ATB is expecting Alberta to avoid a “hard landing” with inflation coming down, while avoiding a recession. In its best-case scenario, a global bounce back from inflation could boost demand for Alberta’s exports, and final decisions on major projects — including the Pathways Alliance carbon capture and storage project — would provide a boost to Alberta’s economy.

But the remainder of this year comes with risks, the report says. Drought conditions could hinder crop outputs, while a severe wildfire season could force some producers to curtail production. (ATB’s base scenario already projects some crop losses due to drought.)

Last year’s spring wildfires affected oil and gas output, however increased activity in the sector later in the year made up for those losses, Parsons said.

[email protected]
X: @mattscace67

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