The cost of living is increasing at its fastest pace in almost 40 years right now, with data out of the U.S. on Friday showing the country’s inflation rate hit 6.8 per cent last month.

The U.S. Bureau of Labour Statistics said Friday that higher costs for gasoline, shelter, food and new and used vehicles were the biggest factors in pushing the rate to its highest point since June of 1982.

Canadian data for November is not yet available, but it, too, is expected to rise from the 18-year high of 4.7 per cent it hit last month.

While the number was in line with what economists were expecting, the figure is nonetheless eye-popping. The reasons for why inflation is rising around the world are complex, but they boil down to a combination of unprecedented government stimulus cash and record low interest rates colliding with booming consumer demand for goods and services at a time when some supplies are stretched thin.

The pandemic made it harder to produce and ship goods, but after more than a year of lockdowns around the world, consumers are sitting on record amounts of cash and in a mood to spend it.

That’s pushing up prices for everything from housing and oil, even as supplies for things like cars, household goods and even childen’s toys are stretched thin.

High inflation means the cost of everything is going up, and incomes aren’t going up by as much to offset it. Data from Statistics Canada last week showed the average hourly wage of a full time employee was $30.40 last month. A year earlier, it was $29.60, which means the average worker has seen their hourly pay increase by just 2.7 per cent.

Alex Pelle with investment bank Mizuho says it’s telling to see demand remaining elevated even as the price of just about everything increases. 

“The consumer has a lot of spending power, and that is a serious driver of inflation,” she said.

“When we look a year from now, two years from now, we don’t expect the pace of price increases to stay this high, but prices also won’t go back down to where they were before.”

Rate hikes now more likely

Economist Sal Guatieri with Bank of Montreal agrees that inflation will stick around a while yet, saying “there’s little near-term relief in sight,” and noting that even the so-called core rate that strips out volatile items like food and energy prices is rising at an almost five per cent pace right now.

Normally, an inflation rate this high would compel a central bank to ratchet up its lending rate to cool things down. But that isn’t happening right now because the U.S. Federal Reserve is worried about taking away the stimulus from an economy still vulnerable to the ongoing COVID-19 pandemic.

But Guatieri says Friday’s numbers will almost certainly force higher rates to come sooner rather than later.

“The Fed has little choice but to … prepare for the possibility of much earlier rate hikes than it was planning just a few months ago,” he said.

Leslie Preston at TD Bank agrees with that assessment, saying in a note to clients that while some of the inflation may be temporary, in that it is coming from short term surges in demand for things like travel, there are still “strong price pressures across a broad array of categories.”

“Not since the release of Thriller have inflation pressures been this strong in the U.S.,” she said, referring to Michael Jackson’s zombie-themed 1982 hit. 

And that means debt-laden consumers should prepare themselves for something equally scary lurching its way toward them soon.

“Rate hikes will not be far behind,” she said.

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