Close X
Saturday, November 23, 2024
ADVT 
National

Inflation is down, wages are up. Why are Canadians still frustrated with the economy?

Darpan News Desk The Canadian Press, 05 Nov, 2024 11:23 AM
  • Inflation is down, wages are up. Why are Canadians still frustrated with the economy?

The federal finance minister has been taking every opportunity to remind frustrated Canadians that after a bumpy pandemic recovery, the nation's economy is actually doing a lot better. 

Inflation is now at 1.6 per cent, below the Bank of Canada's two per cent target. Interest rates are falling rapidly and more cuts are on the way. The economy, while weak, has avoided a much-feared recession. 

And maybe most importantly, wage growth has outpaced price growth for 20 consecutive months.

But a recent RBC analysis suggests that Canada's economic recovery has been uneven, with "two contradictory trends." Beneath the surface of the more encouraging economic statistics are some less flattering ones.

The top 40 per cent of income earners have taken home 70 per cent of wage growth over the last three years. 

Household spending on a per-person basis is down.

And while low- and middle-income Canadians have devoted more of their pay to essentials and like food and shelter, the highest-income earners continue to amass significant savings.

"It's very much a story of households in different income quintiles or different earnings brackets, if you will, are feeling the current economic environment very differently," said RBC economist Carrie Freestone, who authored the report.

The Bank of Canada's interest rate hikes have contributed to that divergence. Steeper rates have increased the debt load of low- and middle-income households with mortgages or other loans. Meanwhile, people with higher incomes have been earning higher returns on their savings.

"The Bank of Canada is in a really tricky position," Freestone said. "They obviously want to target the prosperity of all Canadians, but it's very difficult to do that with monetary policy, because (they have) one tool."

Economists widely acknowledge that low-income earners are the ones who suffer the most when the cost of living rises. But Freestone's analysis shows middle-income earners have felt the bite as well. 

In 2023, workers in the 40th to 60th percentile of the income distribution allocated the greatest share of their take-home pay to essentials since 1999.

Christopher Ragan, an associate professor of economics at McGill University, says it's not surprising that Conservative Leader Pierre Poilievre's more pessimistic message about the economy has resonated with Canadians over the optimism the Liberals have been trying to project.

"People are still thinking about the pain that they felt unexpectedly two years ago, and some of that pain is still there on interest rates," Ragan said.

"So the government focuses on the reduction in inflation, but they don't talk about prices still being high. They focus on the reduction in interest rates, but they don't talk about the people that were hurt by the interest rate increase."

Stephen Gordon, an economics professor at Laval University, says people tend to have negative impressions of economic conditions even when things are going well. 

From his perspective, the Canadian economy "dodged a bullet" by coming out of a period of high inflation without experiencing a major economic downturn from interest rate hikes. He noted people's earnings have risen, including median earnings.

"I don't see any reason to panic," he said, adding that problems like lagging productivity and economic inequality have always been challenges in Canada. 

"It's kind of hard to put things in perspective. Sometimes it's hard to persuade people, you know, this is as good as it gets. There really never was a golden age."

Finance Minister Chrystia Freeland began holding weekly news conferences last fall to highlight the government's economic agenda in response to widespread concerns about affordability. 

The Liberals are hoping that as the economic picture brightens, Canadians will be more receptive to their economic message. 

In recent months, Freeland has used these news conferences to emphasize good economic news. 

"The Bank of Canada was the first central bank in the G7 to cut interest rates for the first time, the first one to cut interest rates for a second time, the first one to cut interest rates for a third time and the first one to cut interest rates for a fourth time," she said on Oct. 29. 

"I emphasize this because this is really important relief for Canadians and Canadian businesses. It means more money for your household, more money in your pocket."

But so far, Canadians don't seem to feel any better about the state of the country or the federal government, said David Coletto, the CEO of Abacus Data. 

On questions about food and fuel prices, or housing and rental prices, "there doesn't appear yet to be any shift in those perceptions," he said. 

The Liberals have also had no success in closing the double-digit lead the Conservatives have built in public opinion polls, despite bringing forward a spring budget heavily focused on housing. 

Coletto said there's a small chance that the improving economic conditions could help the Liberals, but he said the government faces significant hurdles given the prime minister's abysmal popularity numbers.

"Time is running out, obviously," Coletto said. 

MORE National ARTICLES

Man who steals police vehicle denied bail

Man who steals police vehicle denied bail
The man accused of stealing a Vancouver police vehicle and using it to do doughnuts on a local sports field has been denied bail. The man was arrested on October 6th, when he allegedly stole a police S-U-V and took it for a joyride on a grass field at a park in East Vancouver. 

Man who steals police vehicle denied bail

Police watchdog called after fatal shooting in Penticton

Police watchdog called after fatal shooting in Penticton
Mounties in British Columbia's southern Interior say they've notified the provincial police watchdog after a confrontation that left one man dead and an officer injured. Penticton RCMP say they received multiple 911 calls Tuesday reporting a man acting erratically and allegedly waving a knife. 

Police watchdog called after fatal shooting in Penticton

Quick Quotes: What Liberal MPs have to say as the caucus debates Trudeau's future

Quick Quotes: What Liberal MPs have to say as the caucus debates Trudeau's future
"There's a — what would you call it? Some palace drama going on right now. And that takes us away from the number 1 job, which is focusing on Canadians and focusing on the important policies but also on showing the really clear contrast between our government, our party and Pierre Poilievre."

Quick Quotes: What Liberal MPs have to say as the caucus debates Trudeau's future

BoC delivers half percentage point rate cut to 3.75 per cent

BoC delivers half percentage point rate cut to 3.75 per cent
The Bank of Canada delivered a supersized interest rate cut Wednesday in response to the recent decline in inflation, bringing its key policy rate down by half a percentage point to 3.75 per cent. With annual price growth now around two per cent, the central bank says its job has shifted from lowering inflation to maintaining it around the inflation target.

BoC delivers half percentage point rate cut to 3.75 per cent

Youth stabbed at a Port Coquitlam Secondary School

Youth stabbed at a Port Coquitlam Secondary School
Police in Coquitlam are looking for witnesses after a youth was stabbed and suffered non-life-threatening injuries. Mounties say the attack happened yesterday afternoon just before 3 p-m when officers responded to a report at Terry Fox Park in Port Coquitlam.

Youth stabbed at a Port Coquitlam Secondary School

Families call for inquiry after nine Indigenous people killed in police interactions

Families call for inquiry after nine Indigenous people killed in police interactions
A group of Black and Indigenous women say they want a national public inquiry into a recent spate of police-involved deaths, after nine Indigenous people were killed in interactions with police in August and September. About two dozen people gathered on Parliament Hill on Tuesday, including the families of eight people who died. 

Families call for inquiry after nine Indigenous people killed in police interactions