Inflation hurts incomes more than you might think.
Already, last Friday, the Research Chair in Taxation and Public Finance at the University of Sherbrooke published the results of a study concluding that minimum wage workers would have been impoverished in Quebec without special government benefits for the cost of life.
Thus the 5.6% increase in the minimum wage this year would not have been enough to offset the effect of high inflation on purchasing power and the time that social programs usually take to adjust to it. According to the Chair, the $0.75 increase in the minimum hourly wage, from $13.50 to $14.25 as of the 1er May, would have led to an increase in the disposable income of all the main household categories of around 3.2% to 4.2%, depending on the case. But it would still have resulted in a decline of 0.4%, to almost 2%, in their ability to cover their basic needs, we can read in a text by colleague Éric Desrosiers.
This loss of purchasing power reflects, of course, the surge in inflation, but it also reflects the time lag in the adjustment of the tax table as well as major social transfer programs, such as the tax credit for solidarity or the family allowance, depending on the cost of living. The rapid and persistent surge in inflation accentuates the scope of this shift in the indexation game.
With the $275 benefit announced in the fall and the $500 benefit in March, a two-parent household with two children working 35 hours a week at minimum wage saw their basic needs coverage rate increase from 132 .2% to 133.5%. For its part, a household without children with a single income at the minimum wage was able to barely cover its basic needs (at 101.4%), whereas it was below this threshold (97.4%) last year. . The reference used here is the Market Basket Measure (MBM), used as the official poverty line in Canada.
living wage
By relying on the cost of goods and services that must make up a consumption basket that is deemed essential for a family unit to meet its basic needs, this reference is intended to be rather narrow. The Institute for Socio-Economic Research and Information (IRIS) has for several years been offering a broader reading addressing the notion of living wage and linking the minimum wage to the more real needs of households calculated according to the cost of living and the realities regional.
Compared to the minimum wage is the relative subjectivity of a decent wage that makes it possible to meet broader basic needs and to free up room for maneuver to improve one’s situation. To achieve a viable income that demarcates poverty from the absence thereof, which takes into account, among other things, the presence of public services (mainly a public transport network), government transfers and credits and the different cost of living one city to another.
Its level corresponds, roughly speaking, to 60% of the median income, this last barometer being officially retained in the game of international comparisons. In 2019, about 10% of the Quebec population was below or near the MBM, and 20% below or near living income, indicates IRIS.
The IRIS analysis released on Thursday provides an even more poignant reading of the damage caused by inflation. Based on viable income, the only beneficiaries of the $500 inflation credit are single-person households living in Montreal and Saguenay.
The data covers seven major cities and three household types. Considering only the increase in costs for food, transport and housing, on average, the so-called viable income of a one-person household is in deficit by $170 in 2022 compared to that of 2021, once taking into account the credit of the Legault government. (We exclude Sept-Îles from the calculation of the average, where the impact of the cost of transportation is by far the most felt) The deficit reaches $763, on average, for a household made up of an adult and a child ( excluding Saguenay and Sept-Îles for the same reason); $1,474 for a household of two adults and two children (excluding Sept-Îles).
“We note that of the 21 situations taken into account, the pressure of inflation on the consumption basket of the viable income is not relieved in the same way by the anti-inflation credit depending on the type of household and the place where they live. Households that are dependent on the automobile for transportation fare the least well, while those who have access to public transit to meet their mobility needs fare better,” adds the IRIS.
However, inflation and its impact are probably underestimated in these calculations. Inflation as measured by the consumer price index (CPI) accelerated at the end of the year which spilled over to 2022. In March, the CPI increased by 6.7% from a year to the other, up one percentage point from the 5.7% rate recorded in February, when inflation for goods reached 7.6%, a rate twice that of inflation for services. The Bank of Canada now expects CPI inflation to average nearly 6% in the first half of 2022 and to remain well above the inflation-control range throughout the year.