Feeling the Squeeze: The cost of living in Canada

By Kael Blackburn

As we head into the holiday season a lot of Canadians may be wondering why their wallets are a little thinner. The reason may be tied to a single scary word – inflation.

First off what is inflation? And how do we measure it?

According to David Johnson, a professor of economics at Laurier University, “Inflation is the idea that you will pay more money for the same goods. Over time, there would be an increase in the amount of money that you pay for the same goods.”

The way we measure inflation is by using a metric called the Consumer Price Index. Statistics Canada is a government agency that updates the CPI average every month by calculating the price change of basket goods and services through time. According to Stats Canada, “The CPI basket is divided into 8 major components: Food; Shelter; Household operations, furnishings and equipment; Clothing and footwear; Transportation; Health and personal care; Recreation, education and reading, and Alcoholic beverages, tobacco products and recreational cannabis.”

What is the current CPI telling us?

Before 1992 the inflation rate in Canada was relatively volatile. The rates would fluctuate anywhere from 5% to 12% a year, according to Johnson. In the early 90s, Canada made an effort to reduce the rate of inflation. It ultimately was successful and since 1987 the average rate of inflation was 2.23% up until 2021. Meaning that an item purchased for $100 would cost a consumer $102.23 the following year. This consistent change in this trend may have been why the recent changes hit Canadians so hard.

“Before COVID, people had pretty much gotten used to the idea that inflation was going to be 2%. And it was and people didn’t worry much about it,” said Johnson. “In the first year of COVID, prices actually didn’t move at all. It’s the 2022 year, where, of course, things got much more interesting on the inflation front.”

In the year from June 2020 to June 2021, the CPI reflected that it stayed relatively stable only increasing 3%, just marginally higher than the previous inflation average. However, from June 2021 to June 2022, the following year there has been a drastic increase with the inflation rate reaching 8% in that period. That increase in inflation hit Canadians hard through increased gas, food and living costs. In October of this year, Canadians are paying an extra 26 cents at the pump compared to October 2021, a massive 17.8 per cent increase. In a recent study conducted by Canada’s Food Price Report 2023, a predicted 5% to 7% increase in food prices is anticipated over the coming year. An average family of four may be looking at an extra $1000 on their annual grocery bill in 2023. Rentals across Canada have also skyrocketed. In October, rentals increased by 4.7% from last year. According to Rentals.ca National Rent Report, Toronto rents shot up over 20% in August compared to last year, with an average rental price of nearly $2,700. Mortgages have also inflated, reaching an 11.4% increase in October, the largest jump since 1991.   

Why is it happening?

Well, the answer is far from simple, but one of the main reasons inflation occurs is when the demand for a good exceeds the economy’s capability to meet that demand. In recent times that’s occurred because of two reasons, the pandemic’s effect on the supply chain and the Ukraine war. Both of these have impacted the economy’s ability to provide goods to meet demand. Car manufacturing was brought to a halt because of a global chip shortage wrought by the pandemic. Fuel and grain prices have been impacted by the war in part by sanctions and Russian blockades affecting exportation. Both are unforeseen obstacles outside the government’s control, but both equally contribute to rising costs impacting Canadians.

So, how worried should Canadians be about inflation in the times to come?

Canadians are spending much more on average than they were in the year previous. But will this rate of inflation continue? The answer is… it’s hard to say. It took major events to influence the type of inflation we are seeing today and it’s difficult to predict how those will continue to impact the economy. There is some light, however, according to Eckler Ltd., base salaries may be increased by 4.2% in 2023. With higher salaries, individuals may be able to ride out this period of high inflation.

But for those unable to negotiate a wage increase, this may prove to be a difficult time.