As the Bank of Canada and the U.S. Federal Reserve continue to wage battles with inflation, one economist says some factors driving the cost of living higher will remain completely out of their control.
Canada's inflation rate rose four per cent in August on an annual basis, an increase largely driven by higher gasoline prices, according to Statistics Canada data released on Tuesday. As of Wednesday morning, oil prices remained elevated, with crude West Texas Intermediate priced at US$91.11 per barrel, up roughly 23 per cent since June.
Heightened oil prices are a huge problem for the economy and for consumers around the world, Frances Donald, global chief economist and strategist, Manulife Investment Management, told BNN Bloomberg in a television interview on Wednesday. 
“We know that even when gas prices rise, people don’t generally consume a lot less gas. We’ve got to get to school, we’ve got to get to work, so it acts as a tax on other forms of spending,” she cautioned.
This particular living cost cannot be controlled by North American central banks, she added. 
“Nothing the Bank of Canada of the (U.S.) Federal Reserve does is going to stop floods in Libya or increase (oil production) in Russia or the Middle East,” she said. 
“They’re in a pickle,” she continued. “They’ve told us time and time again, ‘We can and we will cure inflation, that’s our job,’ but they can’t and they probably won’t, so something is going to give.” 
The uncertainty of oil prices makes it challenging for economists to forecast where economic activity will go from here, she explained, though she said it appears an overall slowdown has begun and will continue. 
Donald was adamant that economic growth in Canada is deteriorating and she expects unemployment rate will continue to rise.
“Things are slowing and slowing very dramatically,” she said. 
While she believes the Bank of Canada is done hiking interest rates in this environment, Donald also warned that the central bank will not give Canadians any indication of this policy decision for fear or flaming inflation once more. 
Donald stressed that bank will have to continue to stick to its mandate of reaching its inflation target rate, though there are many factors that remain outside of its control when it comes to the cost of living in Canada. 
“They cannot (the price) oil, they cannot control (the price) food,” she said.