Canada is not the United States. But the discontent against inflation which contributed to the election of Donald Trump is very present here. And it would be dangerous to ignore it, even if the statistics suggest that everything is fine.
Published at 5:00 a.m.
Inflation has returned to normal. Canadians have increased their purchasing power since the start of the pandemic. Interest rates are coming back down. And the economy has avoided the recession that we so feared.
In short, the miracle of “immaculate disinflation”, as the experts put it, has indeed occurred in Canada. Inflation has returned to earth, without triggering a major economic shock.
But then, why do households have their wallets at their heels?
When Nanos surveyed them in November, 41% of Canadians responded that their financial situation had deteriorated over the past year, a considerable jump from 28% in 2021.1. Since the 1990s, more Canadians than ever before (39%) say they are not doing as well as their parents at the same age, financially, according to the polling firm Environics2.
It’s not just a perception. On the ground, we can see that people are not complaining on a full stomach. Visits to food banks have almost doubled since 2019, according to the 2024 HungerCount3. And cases of insolvency (bankruptcies, consumer proposals) have increased by 16% over the past 12 months.
In short, people are really struggling, despite what the good statistics say. How to explain this paradox?
First of all, it must be understood that the prices of products and services are not decreasing, despite the drop in inflation, to 2% last October, four times less than the peak of 8.1% in 2022.
This means that prices continue to rise… four times slower. But we’re not going back. Everything costs 18% more than before the pandemic. This is what people feel in their everyday lives.
And the increase is even stronger for essential expenses, such as food (+25%), housing (+26%) and gasoline (35%). It leaves an impression. And the wallet. Especially for the less fortunate, who cannot cut elsewhere.
These highly visible expenses hit home on a daily basis. They overshadow the fact that Canadians’ disposable incomes have increased even faster than inflation since the start of the pandemic, as demonstrated in a recent study by the Parliamentary Budget Officer, an independent federal agency.4.
Thus, the purchasing power of Canadians improved by 2.7% in Canada (3.9% in Quebec) between the fourth quarter of 2019 and the first quarter of 2024.
But there are downsides to be made.
First, it was a roller coaster ride.
At the start of the pandemic, the government intervened massively to support households, who increased their purchasing power despite widespread job losses.
Things got worse from 2022, when inflation skyrocketed, pushing the central bank to raise interest rates. Doubly stifled, households have seen their purchasing power decline over the past two years. That’s what they keep in mind.
Second, the rich fared better than the poor.
The rise in interest rates paid off for wealthier households, whose investment income increased. But it was costly for less well-off households, who had to pay more to repay their loans.
In short, the pandemic has widened inequalities between the rich and the poor. Between owners and tenants. Between the old and the young, who are today very heavily affected by the rise in the unemployment rate.
It is clear that the post-pandemic recovery has not been equal for all, explains the Royal Bank in a recent report5.
The least wealthy 20% go into debt to pay for essentials. Even the middle class finds itself very tight, having completely exhausted its excess savings accumulated during COVID-19. But the wealthiest 20% manage to save a third of their pay every month.
This explains why bank accounts are filling up, while food banks are emptying.
These gaps are harmful to social cohesion and trust in institutions. They exacerbate the resentment towards the “elites” that populist politicians are happy to fuel.
The job of the Bank of Canada is to ensure the well-being of Canadians. But his monetary policy had very contrasting effects for the rich and the poor.
If we want disinflation to truly be “immaculate”, the economic recovery must benefit all Canadians.
1. Check out the Nanos survey results
2. View the report Intergenerational Mobility in Canada (2024)from Environics (in English)
3. View the report Hunger Report 2024from Food Banks Canada
4. Consult theDistributional analysis of the purchasing power of Canadian households since 2019
5. View the report Why Canada is seeing an uneven recovery among households, of the Royal Bank (in English)
