Canada is experiencing a level of inflation not seen since 1983, but economists say not everyone is experiencing it the same way.
Canada’s inflation rate — an increase in the price of goods and services as measured by the consumer price index — hit 7.7 percent in May, according to Statistics Canada, driven by a combination of higher living costs, supply chain problems and the Russian invasion of Ukraine.
According to economists Rachel Samson and Kevin Milligan, how acutely each person feels the effects of an increasingly expensive basket of goods and services depends on their income level, which goods they spend most of their budget on, and their overall financial vulnerability. Samson is vice president of research at the Institute for Public Policy Research, and Milligan is a professor at the Vancouver School of Economics at the University of British Columbia.
WHO IS MOST AFFECTED?
Canadians, whose household budgets are mostly spent on necessities such as food and shelter, are most affected by inflation in the short term, Samson said. Compared to 2021, food spending in Canada increased by 9.7 per cent in April and May, while shelter spending increased by 7.4 per cent, according to Statistics Canada.
“In big cities, about 60 to 70 percent of low-income renters spend more than 50 percent of their pre-tax income on rent. That leaves little room for additional food costs,” Samson told CTVNews.ca in an email Friday, adding that low-income people who must drive to work face additional challenges in the short term with rising gas prices .
Among the most vulnerable low-income people, Samson said, are working-age adults with disabilities who struggle to afford basic needs without the pressure of inflation, as well as visible minorities, who she said experience higher levels of poverty compared to with the general population.
“The poverty rate among visible minorities is almost double that of invisible minorities,” she said. “For some ethnicities, it’s triple that of invisible minorities.”
Milligan, who specializes in labor economics and the economics of children and the elderly, said he was concerned about anyone relying on fixed sources of income, such as old-age pensions or disability benefits, that don’t keep pace with spending. for life.
“For people who are on pensions, some of those pensions are not even adjusted for inflation. That’s pretty common in the private sector,” Milligan told CTVNews.ca in a phone interview Wednesday.
“But even those like state pensions that are indexed to inflation, cost of living updates to those pensions tend to be a bit slow. It reflects what happened six months ago or a year ago, not what is happening today.
IMPACT ON STUDENTS, FAMILIES
Because inflation can raise the price of almost any good or service, Milligan said its effects affect many segments of the population, from students to homeowners. For example, students, like other people whose budgets are primarily devoted to shelter, are affected by rent increases.
“I know here in Vancouver, rents have gone up a lot over the last year and that’s going to affect students for whom it’s a big part of their budget,” Milligan said.
Milligan said families were vulnerable to changes in the price of food and fuel, the latter of which rose 48 percent in May compared to last year. Anyone who consumes gasoline, natural gas or propane is being affected by energy prices, which rose 34.8 per cent in May compared to last year, according to Statistics Canada.
Samson noted that homeowners could also be susceptible if inflation continues and leads to a recession.
“Homeowners looking to buy a home can be squeezed by rising debt interest payments and falling home values,” she said.
Samson and Milligan are divided when it comes to single working adults. Because this group has a higher incidence of poverty and less access to benefits, Sampson said single working adults are vulnerable to the effects of inflation in the short term.
While Milligan acknowledged that single adults are being hit by inflation, he said they can respond with more flexibility than students, seniors or families. For example, if they are willing and able, they may take on additional work to supplement their income if there is work available.
“They have a little more flexibility to work a little more, find extra hours, try to earn a little more income,” Milligan said. “So that’s why this group as a whole might be a little bit more able to handle things. “
INFLATION SOLUTION
Samson, whose organization is involved in influencing public policy through research, says governments need to look at who is most vulnerable to inflation and develop policies to target those individuals and households, as well as increase existing benefits .
“Broad-based measures such as gasoline tax cuts are not effective because it is not clear how much of the tax cut will be passed on to consumers and that benefits higher-income consumers,” she said.
“Measures like those in Vancouver, which subsidize electric bikes for low-income people or subsidized transit passes for minimum-wage workers, may be more effective.”
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