For the past four decades, Canadians have enjoyed relative stability amid the backdrop of a strong economy. Yet, suddenly many Canadians are struggling to make ends meet. What’s changed? Today Canada is experiencing a 40-year high rate of inflation with interest rates at a 22-year high.
Canada’s soaring inflation is casting a long shadow on Canadian prosperity. This high rate of inflation also poses a significant threat to the middle class as it diminishes its purchasing power and derails its ability to afford basic necessities. The burden of Canada’s out-of-control inflation is impacting many Canadians who now live with financial strains and limited prospects for saving, investing, and pursuing a higher standard of living.
Diminishing Purchasing Power
The average Canadian’s purchasing power is essentially their ability to buy goods and services. Historically, the average Canadian’s purchasing power has been a reliable indicator of the overall financial well-being of its citizens. Unfortunately, the current inflation rate in Canada is eroding Canadian purchasing power. Basic commodities, such as groceries, fuel, and housing continue to increase which is straining the budgets of ordinary Canadians. This is a particularly difficult time for low-income households.
Household Budgets Strained – Foodbanks
Inflation has a direct effect on household budgets. Today, Canadians must rethink their spending habits and prioritize spending on essential needs. The cost of living in Canada is skyrocketing, yet wages and salaries in most sectors are struggling to keep pace. This imbalance between the cost of living and wages and salaries is forcing families to make difficult choices. Sadly, we are hearing stories of mothers adding water to their children’s milk to stretch their grocery dollars. Others are reporting that they are skipping meals to save money. Food banks are now accessed by one in seven Canadians.
The Impact on Housing
The Canadian housing market is no stranger to inflationary pressures. High home prices coupled with interest rates that are at a 22-year high, make it increasingly challenging for first-time buyers to enter the market. Some existing homeowners are struggling to keep up with mortgage payments that are increasing beyond their monthly income thresholds. Some Canadians can no longer invest in their future through asset acquisition and face increased instability and insecurity in their financial futures.
Consumer Confidence and Economic Growth
A high inflation rate not only undermines the purchasing power of individuals but can also have a broader, negative impact on Canada’s economy. As Canadians become more hesitant to spend, consumer confidence dwindles. When consumers have less faith in their financial stability, they alter their behavior and cut back on spending. This chain reaction disrupts economic growth and stalls business investments, ultimately hampering Canada’s overall economic recovery and future development.
Addressing the Crisis
Unhindered government spending and the carbon tax are the root causes of Canada’s inflation today. Far too many Canadians have been lured into taking on debt through lines of credit readily offered by their banks. Dipping into lines of credit during times of low-interest rates worked well for many Canadians. But now that interest rates are at a 22-year high many are at risk of defaulting on mortgages, car payments, and business loans. Canadian banks need to promote responsible borrowing practices so Canadians don’t find themselves with lines of credit repayment debts that are unaffordable during today’s high-interest rates.
Canada’s 40-year high inflation demands immediate action by Canadian lawmakers. Now is the time to do away with the carbon tax that hasn’t done anything to reduce emissions but has made the cost of everything more expensive. Governments must also reduce their spending. Runaway government spending is eroding the purchasing power of the average Canadian and threatens the stability of the nation’s economy. By acknowledging the severity of Canada’s inflation crisis, and implementing common-sense government policies, we could pave the way for a prosperous future where every Canadian has the means to flourish and thrive.
Elaine Allan, BA, MBA
Business & Political Blogger