Are Canadians too concerned about inflation?

Canadians remain hyper-concerned about inflation, despite the fact that we’re not experiencing hyper-inflation here in Canada. An Ipsos survey of 29 countries in the world shows that Canadians rank fifth in terms of their level of concern about inflation. A majority (53 per cent) of Canadians cite inflation as a top concern for them, up from the 30 per cent who said so a year ago.

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The only countries where more citizens are concerned about inflation are Argentina (69 per cent), Poland (67 per cent), Turkey (60 per cent) and Hungary (56 per cent). This places Canada in some peculiar company, given that inflation is significantly higher in each of these countries than it is in Canada. At the end of 2022, annual inflation rates were 95 per cent in Argentina, 17 per cent in Poland, 64 per cent in Turkey and 25 per cent in Hungary.

In stark contrast, Canada’s annual rate of inflation as of December 2022 is 6.3 per cent. While this is well over the Bank of Canada’s target rate of two per cent, it is also well shy of the 12 per cent inflation experienced by Canadians in the early 1980s. And yet Canadians are in a heightened state of anxiety over inflation, despite the fact that, compared to many other countries, Canada isn’t doing that badly.

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What explains the elevated concern about interest rates in Canada? First, one must not discount the lived experiences of Canadians. Recent Ipsos polling for Global News has revealed that 22 per cent of Canadians say they are out of money and simply can’t absorb higher prices. Another 32 per cent say that they would need to make major changes to their budget to make ends meet if prices go up further. The inflation rate is coming down, but it’s not zero. Prices will continue to rise, even if at a slower pace, and Canadians are saying they are already tapped out.

Half (52 per cent) are already concerned about being able to feed their family, rising to six in 10 parents with kids in the household. We can try to rationalize and try to put Canadian figures into context all we want, but if parents are being kept awake at night worried about how they’re going to put food on the table, how can anybody tell them that their concerns are overblown or not justified?

Second, many Canadians simply aren’t used to inflation rates above two-three per cent. It has been decades since Canadians have experienced anything close to what is being experienced presently. Anybody aged 50 or under has never had to contend with inflation rates above five per cent as an adult. New experiences can be frightening, and the stories of our parents (or distant memories of our own) having to contend with 12 per cent inflation rates or 18 per cent fixed-rate mortgages are indeed anxiety-inducing, if not frightening. It’s also worth noting that inflation rates for groceries — where Canadians seem to notice inflation the most — have been higher than the aggregate rate, giving the impression that overall inflation is higher than it really is.

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Third, given the Bank of Canada’s recent tightening of monetary policy through rapidly rising interest rates, Canadians are getting the message that the antidote to high inflation is higher interest rates, and this scares them. Canadians have a love affair with debt. In the early 1990s, the last time inflation was a real concern, debt-to-disposable-income ratios were in the mid-90s. Now those same ratios are in the 180s, meaning we carry nearly twice as much debt as we have in annual disposal income. Over the last few decades, we’ve been very comfortable with two to three per cent mortgage rates and cheap lines of credit. But those renewing their two-to-three per cent mortgage from five years ago will now pay six to seven per cent. And those who are on variable-rate mortgages are feeling the vice squeezed tighter with every announcement from the Bank of Canada.

Finally, inflation has been weaponized for political gain. Terms such as “Justinflation,” and calls to fire the governor of the Bank of Canada for not having acted more quickly and misreading the tea leaves have likely contributed to fanning the flame and stoking greater fear, anxiety and even anger about inflation. While it could be true that many of our political leaders may not fully appreciate the extent to which Canadians say they’re feeling the pinch to their pocketbooks, and the opposition parties are right to bring this to the attention of those on the government benches, a foray into monetary policy for the sole purpose of gaining political advantage is only adding fuel to the worries of Canadians rather than providing any helpful solution.

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Moreover, Canadians could be feeling angsty about the situation because they feel that their governments aren’t capable of managing the economic challenges we are facing.

This all suggests that, while Canadians’ levels of anxiety may seem disproportionate to the actual inflation Canada is experiencing relative to other countries, their worries are understandable and even rational. They haven’t experienced inflation like this in over a generation and were already over-leveraged on debt. Meanwhile, politicians are throwing fuel on the fire and keeping the worry high.

If inflation persists throughout 2023, even at a reduced level, expect increased pressure on governments to provide even more relief, as well as continued demands for higher wages. Both of these demands, if met, could lead to more inflation. At the same time, expect a further tightening of household spending, which can contribute to decreased consumer confidence and a recession.

Canadians may well have good reason to worry, even though we have it better than those in many other countries.

Sean Simpson is senior vice-president of Ipsos Public Affairs in Canada.

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