The Parliamentary Budget Officer (PBO) has released an analysis of inflation and Canadian household incomes since the start of the COVID-19 pandemic. The analysis also includes a portrait of purchasing power at the provincial and territorial level.
COVID-19 disruptions had a major impact on the price of goods and services, and therefore on household purchasing power. In 2021, commodity prices and supply chain disruptions drove up the price of consumer goods, but in 2022 inflation accelerated and became more widespread. Consumer Price Index (CPI) inflation reached an all-time high of 8.1% in June 2022.
“Based on our analysis, the price of the basket of goods and services has increased by 15% since 2019, but disposable income has increased by 21%, supported by government transfers, wage gains and net investment income, thereby improving the purchasing power of most Canadian households,” said PBO Yves Giroux.
Households in the top two income quintiles saw their incomes rise three times faster than those in the bottom two quintiles. This is partly due to higher wage growth for these households. As well, rising interest rates have increased investment income, offsetting interest payments for higher-income households.
“While disposable income has, on average, increased for households at all income levels from the pandemic, since 2022 rising inflation and tighter monetary policy have reduced purchasing power for lower-income households,” added Giroux.
As for purchasing power in the provinces, Quebec, Ontario and British Columbia saw theirs increase, while Newfoundland and Labrador, Nova Scotia and Alberta saw theirs decrease as inflation outpaced income growth. In the territories, household purchasing power has increased significantly since late 2019.