It’s impossible for B.C. residents to ignore how the cost of staples like food, transportation and housing are at levels not experienced in generations.
But experts said the government can provide support for people who are struggling right now, while the Bank of Canada works on bringing prices down in the long-term.
With the Consumer Price Index poised to record a 7.7 per cent year-over-year inflation in May, Statistics Canada surveyed Canadians in April to learn how price increases affected them during the past year. Almost three-in-four said day-to-day life is more expensive.
Roughly two-in-five Canadians said last year’s 9.7 per cent increase in the cost of food hurt their wallet the most, according to Statistics Canada. People living in rural areas were more likely to say the cost of transportation makes their daily life harder. Gas prices in Vancouver increased by about 46 cents-per-litre during the year leading up to the survey.
University of Victoria economics professor Alok Kumar said food prices are most concerning. Kumar expects higher food prices for at least another year, because staple foods from Russia and Ukraine’s summer harvest are cut off by the war.
Local organizations working with the Social Planning and Research Council of B.C. see firsthand how the situation is changing people’s daily lives, executive director Lorraine Copas said.
“One of the local farmers who does work at one of the farmers’ markets noted there would be seniors asking if they could just have the scraps — they would chop up a cabbage and the seniors were asking for the core of the cabbage just to make soup,” she said.
University of British Columbia economics professor Giovanni Gallipoli said the increases we see today are the result of a perfect storm: two years of ongoing shocks to the economy. He said there is not much the government or Bank of Canada can do to bring prices down in the short-term; inflation is going to hurt.
However, he also said the economy may adapt to the root causes of price increases in the long-term.
“It is almost like the body getting used to a disease or a problem — it adjusts,” Gallipoli said. “Supply chains can shuffle and change, the price of energy comes down because new producers come online.
UVic economics professor Graham Voss said the province should make support for low-income people the priority because people with lower incomes already spend a larger chunk of their earnings on these basic expenses.
The challenge for policy-makers is helping people who are hurt most by rising costs without undermining the Bank of Canada’s plan to slow inflation. Income supplements could seem helpful in the moment, but wide-scale benefits could speed up inflation, Kumar cautioned.
The provincial and federal governments should provide targeted support for food, transportation and housing, he said. For example, the province could give a larger climate action tax credit to low-income earners who live in rural areas.
The economists agreed interest rates need to be high to slow inflation caused by more spending. Higher interest rates slow demand, but do not help the supply-side causes, Voss said. Decreased supply of food and gas is the biggest cause of the prices we see today.
The Bank of Canada set a relatively high interest rate of 1.5 per cent to slow inflation — and slow people’s expectations about inflation.
For the past 30 years, people could generally expect prices to rise by roughly two per cent each year, Voss said. This is important because companies knew how much to increase prices. Life could become more expensive if people expect prices to continue increasing at a speed greater than seven per cent each year.
“It becomes circular. If people expect inflation to be high, they behave in such a way that it will turn out to be high in the future,” Kumar said.
The economists said they cannot predict when prices will go down. The government needs to help British Columbians live through this in the meantime, Voss said. Benefit amounts and eligibility criteria are supposed to stay in step with inflation, but there is often a lag. People cannot afford that lag right now, because budgets are already so tight.
The Market Basket Measure is the poverty line established by the 2018 federal poverty reduction plan. The line is calculated by the costs of basic needs of a household and vary by region. But as prices rise, this measurement may hide how many people are struggling to meet the cost of living, Copas said.
“If we don’t have the right measure, we are actually underestimating the true impact on people in their daily lives,” she said. “If you start [the poverty line] too low and declare victory too soon, there will be a lot of people left behind.”