Canada’s inflation rate — an increase in the cost of goods and services as measured by the consumer price index — reached 7.7 per cent in May, according to Statistics Canada, due to a combination of the increased cost of living, of supply chain problems and Russia’s invasion of Ukraine. How strongly 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, according to economists Rachel Samson and Kevin Milligan. Samson is the vice president of research at the Institute for Public Policy Research, and Milligan is a professor at the University of British Columbia’s Vancouver School of Economics.
WHO IS MOST AFFECTED?
Canadians whose household budgets are mostly spent on necessities like food and shelter are hurt more by inflation in the short term, Samson said. Compared to 2021, the cost of food in Canada rose 9.7 per cent in April and May, while the cost of housing rose 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 rates of poverty relative to the general population. “The poverty rate among visible minorities is almost double that of non-visible minorities,” he said. “For some ethnicities, it’s three times that of non-visible 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 do not rise with the cost of living. “For people receiving pensions, some of those pensions don’t even have adjustments for inflation. It’s pretty common in the private sector,” Milligan told CTVNews.ca in a phone interview Wednesday. “But even those like public pensions that are inflation-adjusted, cost-of-living updates to those pensions tend to be a bit late. It reflects what happened six months ago or a year ago, not what’s happening today.”
IMPACT ON STUDENTS, FAMILIES
Since inflation can increase the price of almost any good or service, Milligan said its effects reach many segments of the population, from students to homeowners. For example, students, like other people whose budgets are primarily devoted to housing, are affected by rent increases. “I know here in Vancouver rents have gone up significantly in the last year and that’s going to affect students for whom this is a big part of their budget,” Milligan said. Milligan said families are vulnerable to changes in food and fuel costs, the latter of which rose 48 percent in May compared to last year. Anyone who uses gasoline, natural gas or propane is affected by energy prices, which rose 34.8 per cent in May compared to last year, according to Statistics Canada. Samson noted that homeowners can also be sensitive if inflation persists and leads to a recession. “Homeowners who stretched to buy a home could be squeezed by rising debt interest and falling home values,” he said. Samson and Milligan are divided when it comes to single working adults. Because this group tends to have 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 affected by inflation, he said they can respond more flexibly than students, seniors or families. For example, if they are willing and able, they can take on additional work to supplement their income if work is available. “They have a little more flexibility to work a little more, pick up a few extra hours, try to earn more income,” Milligan said. “Because of that, this team in general might be a little bit more able to handle things.”
TACKLING INFLATION
Samson, whose organization works to influence public policy through research, says governments need to look at who is most vulnerable to inflation and develop policies that target those individuals and households, as well as increase existing benefits. “Broad-based measures such as cutting gasoline taxes are not effective, as it is not clear how much of the tax cut will trickle down to consumers and benefit higher-income consumers,” he said. “Measures like those in Vancouver that subsidize e-bikes for low-income people or subsidized transit passes for minimum-wage workers may be more effective.”
