Canada Falling Behind
Table of Contents :
Canada Falling Behind.
Inflation down.
Core Inflation.
Most Hurt.
Economic Slow Down.
My Perspective.
Disclaimer.
It is concerning when Canada's standard of living is falling behind other advanced economies, so the policymakers must address this issue promptly.
Out of control inflation, and loose monetary policy played a huge role, and brought us these financial challenges that we face today.
Canada Falling Behind
According to a new report from TD, it seems standard of living in Canada is falling behind, in comparison with it’s peers.
Back in 1980s, Canada was way ahead of all advanced western economies in quality of life.
But this lead eroded slowly over time, and now all of them are way ahead of us.
Even though post pandemic, our GDP growth rebounded much quicker than other G7 countries, but overall Canadian growth is slowing down consistently for the past few decades.
Now with aging population, overall economic productivity goes down, that drags standard of living with it.
Therefore some fundamental changes need to be done to stop this decline.
Inflation down
Every Canadian is worried about one thing, that is inflation.
Latest inflation numbers for June came at 2.8%, lower than May that were over 3%.
No doubt this reduction is encouraging and much welcomed, but Canadians are still facing almost double digit rise in food prices.
Also staggering rise in mortgage cost is putting enormous pressure, on people’s finances.
Since food and shelter are both basic for human existence, so huge spike in these costs is a challenge for an average Canadian.
I know inflation data for June came lower at 2.8%, but Canadians are not feeling it’s effect on their wallets right now.
Core Inflation
Even though inflation data for June came lower, Canadians are still facing a cost of living crisis.
I believe stubborn core inflation is the culprit, behind economic challenges we all face today.
Surely drop in energy prices did help inflation.
But when you go out to buy any thing, from food to other basic essentials, prices still remain elevated.
Food prices are up about 8% comparative to last year, and housing costs have gone up as well.
Until core inflation is not brought under control, which I know will take more time than we all think, Canadians will have to bear the brunt of the devil named inflation.
Most Hurt
Inflation is a silent economic killer, as it erodes purchasing power and living standard of a common man.
Even though rate of inflation has come down significantly, but still remains above Bank of Canada’s mandated 2% target.
I believe, it will take more time for wages to do catch up with inflation, till then times will remain tough.
Most vulnerable are families with children, as greater share of their incomes are going towards increased housing and food costs.
Families who have bought their dream homes in last couple of years, are overstretched now with increases mortgage payments, because they bought when prices were inflated in my opinion.
Economic Slow Down
It is clearly evident that Canadian economy is losing steam, the main reason is monetary tightening by Bank of Canada.
Runaway inflation has widened the gap between supply and demand, which is being corrected now by higher rates, as it reduces demand.
In my limited wisdom, the higher rates will stay put for an extended period of time, so that core inflation in the economy is also brought under control.
In most cases, it takes 8 to 10 months for such effects to trickle down in the economy, therefore it remains to be seen how much more slow down Canadian economy will face.
My Perspective
Many economists are forecasting another rate hike, and I agree with that.
Therefore Canadians need to be ready to bear the brunt of it.
Core inflation in our economy still remains high, and it will be a cause of concern for Bank of Canada, when they spell out their next monetary decision.
When rates are being raised at a very fast pace, new mortgage renewals will bring additional financial challenges for Canadians.
It is a double whammy for us all, higher cost of borrowing alongside high core inflation.
That is why I believe, Canadians are falling behind our peers in the western developed world in relative standard of living.
Disclaimer :
As a disclaimer, I’m not a financial advisor please consult one before investing based on your personal financial situation.