Jul. 22, 2022

What inflation means to average Canadians

Our media are filled with stories about ‘unprecedented’ inflation and what it means. Media mavens interview economists and other experts who wrap their commentary in arcane terms that result in a fog that leads to more questions for the average person.

On June 30, 2021, the $CAN was valued at $0.8070 $US. On June 30, 2022, the $CAN was valued at $0.7760 $US. The $CAN value had reduced by 3.1 cents or 3.8%. That means that imported goods are 3.8% more expensive and higher prices will be included when we buy imported goods.

On June 30, 2021, the consumer price index stood at 141.4 which was an increase of 3.1% over June 30, 2020. On June 30, 2022, the consumer price index stood at 152.9 which was an 8.1% increase over June 30, 2021.

In understandable terms, it means every $100 we spent in 2020 would only buy $84.30 worth of goods and services today. Over two years the buying power of our after-tax cash has diminished by 15.7%. The less after-tax income a person or family has, the harder it is to maintain an adequate level of clothing, food and shelter.

On June 30, 2021, the Bank of Canada’s prime rate was 0.25% and rose to 1.5% by June 30, 2022. It is now 3.7% or 14.8 times higher than it was in June 2021. In June 2021, chartered banks set their prime rates at 2.45% and today they are at 4.7%, a 91.8% increase. Prime rates are the best available rates for those with high financial resources. Everyone else pays more.

Interest rates on credit cards and mortgages will increase sharply. In June 2021 the best mortgage rate available on a five-year fixed mortgage was 2.25% Today it is about 4.59%. On a $300,000 25-year mortgage, that represents an increase in interest payments of about 16.7%. Those who are barely managing mortgage payments today are in serious trouble.

Inflation affects us in multiple ways. Our after-tax dollars buy less while at the same time increasing credit card and mortgage rates eat away at our net income. The cumulative effect of a lower valued dollar, the reduced buying power of that dollar and higher interest rates are devastating.

That will lead to a sharp increase in poverty. Runaway inflation amounts to a war on low-income persons least able to defend themselves. Governments may consider them to be collateral damage, but spending billions on ocean cleanups and green transition while tens of thousands can’t afford adequate food and clothing is monstrous neglect of the government’s responsibility.

Don’t allow the government to blame COVID for deficits. The government effectively shut down our economy throwing millions out of work and then spending billions trying to patch over income losses that were inevitable and predictable.

The 0.25% bank of Canada prime rate was intended to stimulate an economy flagging due to government policies that drove away private sector investment. Investors flee unpredictability and since 2015 our government has been erratic and irresponsible, espousing unconventional and questionable policies and programs that have undermined economic and social stability.

The low bank of Canada was politically motivated and contrary to sound financial management. The rate should not fall below 2.5% in a stable economy. Now the government is belatedly scrambling to harness inflation. Our governance is reactive, not proactive.

COVID lockdowns were untested, untried and unproven. No studies had been done on the economic effects of closing all but essential services. The government discovered the effects after lockdowns were mandated. It is not relevant that most nations around the world got on the lockdown bandwagon. The duty of the Canadian government was to assess how a lockdown would affect Canada and its people and to reduce the fallout as far as possible. That was not done.

Millions of Canadians have lost trust in our government as a result. They have suffered economic upheaval over the past few years and now face a sharply increasing cost of living without an increased income. That will result in many more people living in poverty.

Our government has buried itself in a fantasy land of climate change, green transition, ocean cleanup, $10 a day daycare and a host of other non-essential policies and projects while ignoring core services and economic realities. Behaving like truant adolescents with a new credit card is neither leadership nor acceptable governance. The fantasy must end.  

The opposition parties are failing us by not highlighting core economic and service failures and proposing plans to restore order and stability to governance. We the people feel disenfranchised, unwilling spectators of the slow-motion train wreck of a once promising and prosperous Canada.