Canada Inflation Rate Makes Purchasing Harder For Canadians

Canada Inflation Rate and higher interest rates have eroded Canadians’ purchasing power since 2022. This has particularly been very hard for lower-income households. This statement was recorded as per a new report which a particular parliamentary budget officer had found. However, wealthier households have seen their purchasing power rise. This owes a big thanks due to their investment income.

Over a longer time period which was since the last quarter of 2019, the average purchasing power of Canadian households rose by 21 percent. Along with it, the government transfers, wage gains, and net investment income supported the gain. This was said by the Parliamentary Budget Officer Yves Giroux in the report.

“However, this conclusion does not provide a full picture of the recent changes to purchasing power in Canada,” the report said. “Infact, it is widely accepted that the Canada inflation rate and the accompanying tightening of monetary policy have affected household purchasing power. This has happened on an entirely disproportionate basis, depending on the income level.” For the lower-income households, “small increases in income were not enough to counteract the effect of inflation on their purchasing power.”

Canada Inflation Rate: What More Has The Households Faced?

On average during the period of the Canada inflation rate, the households have experienced price increases. This has gone to a range of about 15 percent on a typical “basket” of goods and services, the report said. Plus, spending on food, shelter, and transportation accounted for more than three-quarters of the Canada inflation rate. This was done although these categories made up less than half of the 2019 consumption bundle.

Canada inflation rate however, began heating up in 2021. This happened because raw material costs and supply chain disruptions put a lot of pressure on prices. This was noted as per what the report stated. However, as Canada inflation rate sharply accelerated in 2022, the household purchasing power declined. Meanwhile, the Bank of Canada rapidly increased its key interest rate from its pandemic-era lows. This went on to effectively bringing it up to five percent by mid-2023 before hitting pause.

Canada Inflation Rate: What About The Consumer Price Index?

The consumer price index with reference to the Canada rate of inflation has reached an all-time high of 8.1 percent in June 2022. From then, it has slowed down ever since it was under the weight of rate hikes. This was by the Bank of Canada. While higher interest rates weighed forward on many households as the cost of their mortgage payments rose, it also helped boost investment income. This was stated as per what the report said.

The investment income of the wealthiest 20 percent of households grew faster than their interest payments. This went forward on to leading to a net increase in income over inflation. Plus, this has been good in boosting their purchasing power in 2023.

How Is It For Other Households?

For other households, interest payment increases on average were higher than their investment income last year. This heavily results in many households to be in the third and fourth quintiles. Especially, the ones which saw their purchasing power stagnate, while the lowest-income households saw their power deteriorate.

“In summary, the purchasing power of most households remained higher in the first quarter of 2024 than in the last quarter of 2019,” the report said.

“However, since 2022, rising inflation and tighter monetary policy have eroded purchasing power, particularly among lower-income households.”

List To Know The Consumer Price Index by Bank of Canada