The author is a full professor in the Department of Economics at the School of Management Sciences at UQAM. He was also Minister of Finance and the Economy of Quebec.
The current high inflation could reduce the purchasing power of less fortunate households, since their income largely depends on the rate at which it is indexed when prices rise. However, the indexation rates used by governments are probably not a good reflection of the inflation that these households are actually facing. It is therefore unfortunately possible that low-income households will experience an erosion of their purchasing power and become impoverished.
Note that the annual inflation rate in 2021 in Quebec was 3.8%, while for Canada, it was 3.4%. This is the highest inflation since 1991 in Canada.
Behind these figures, we will find significant disparities for the different goods and services. For example, in Canada, the price of gasoline increased by 33.3% between December 2020 and December 2021, while for public transit, the price fell by 2.8%. In Quebec, the figures are of the same order, but still different: an increase of 36.6% for gasoline and a decrease of 4.8% for public transit.
The case of food is also instructive. In Quebec, between December 2020 and December 2021, food prices increased by 5.2%, which is very high, but is only part of the story. Thus, some foods saw their prices increase more strongly: an increase of 7.0% for meat and 9.1% for fresh fruit. On the other hand, the price of fresh vegetables only increased by 1.3%, and that of eggs decreased by 1.1%.
These figures show that the inflation we face depends on where we live and what we consume.
Consumer price index
Which brings us to the calculation of the consumer price index. To calculate it, Statistics Canada constructs, using survey data, a fictitious basket consumed by the average Canadian (PCM) made up of several hundred goods and services. It then measures, each month and in several places in Canada, the prices of the various goods and services of the PCM. Statistics Canada can then calculate the expenditure necessary to obtain it at a given time and in a given place. Reported inflation is simply the growth rate of the expenditure associated with PCM content.
This approach is great in many ways, but it comes with an obvious limitation: the official inflation rate is what someone who very accurately consumes PCM experiences. However, few people consume this way.
For example, in 2019, the average Quebecer spent $58,208 on everyday consumer goods and services, while the average Canadian spent $68,890 on them, a significant gap of more than $10,000. In addition, the average Quebecer did not distribute his dollars in the same way as the average Canadian. For example, the average Quebecer spent 16.9% of their expenses on food and 5.1% on health care, while for the average Canadian, it was 14.9% and 4.0% of their expenses.
Still for 2019, but this time for all of Canada, those aged 65 and over spent $48,453 on daily consumption, or $20,000 less than the $68,980 for the average Canadian. And like the average Quebecer, Canadians aged 65 and over devoted a larger proportion of their expenditure to food (16.7%) and health care (6.5%) than the average Canadian.
Mismeasure
The official inflation rates in Quebec and Canada probably misrepresent the reality experienced by the average Quebecer or by a Quebecer aged 65 and over, quite simply because they do not consume PCM. Unfortunately, this has consequences.
First, Ottawa indexes old age pensions and the Guaranteed Income Supplement according to the official rate of inflation in Canada, based on the PCM. Clearly, the rate of inflation in Canada may be different from that to which those aged 65 and over in Quebec are actually exposed.
Then, Quebec indexes the benefits of the Quebec Pension Plan and public sector pension plans, as well as the minimum wage and social assistance benefits, according to the official rate of inflation in Quebec, also based on the PCM. Here again, it is plausible that the indexation rate used differs from the reality experienced by our retirees, our minimum wage workers and our social assistance recipients.
The danger is obviously that the indexation rates used are lower than the inflation rate to which these households are actually exposed. For the latter, many of whom are already experiencing difficult month-ends and struggling to adapt to inflation, the consequences of under-indexation are a pure and simple reduction in their purchasing power and their impoverishment.
When will there be an official measure of inflation for seniors or those with low incomes? Statistics Canada published studies in 2005 and 2019 that both showed a slight unfavorable gap for seniors. The organization therefore has the expertise. But for these inflation rates to be published one day, governments would still have to ask for them.