There’s an expectation by many that the cost of living could relax in a meaningful way, as a ripple effect of interest rates being raised to curb inflation. But I want to caution those believing this that there’s a difference between policymakers trying to rein-in inflation and stimulating deflation.
A couple of thoughts:
- Overall, the population as a consumer base has largely adjusted (although it’s painful), to the current costs of most goods and services. And although some staples and everyday items fluctuate (such as eggs the past few weeks, or fuel in the second half of 2022), the costs of most goods have stabilized.
- With supply chains mostly being back to full strength, and most manufacturing back to the necessary levels to keep up with demand, the cost of most goods and services show few signs of dropping by amounts significant enough to noticeably impact everyday life.
- The costs of virtually any goods and services are linked closely to wages (both in terms of what people can afford to pay for things based on their earnings, and in the opposite direction by what businesses can sell them for to remain viable or profitable). Wages seeing increases through COVID and now stabilizing has an anchoring effect on cost of living rising beyond what the general population can afford. And businesses finding the ranges they can charge as much as they can without seeing people take their business and to still be able to continue to pay its employees appears to be happening in most industries.
- Recreational spending is slowing, but still strong. This suggests that although many households live month-to-month financially, there is still money circulating in the economy and keeping non-essential industries and businesses staffed. This is the main factor to watch as credit tightens and cost of living rises.
It’s human nature after such a long period where housing, although it was always expensive, jumps rapidly in cost that we assume it to be an anomaly. But the anomaly was the low borrowing rates rippling through to every household (lower prices and lower rates also meant lower rents, etc.). The key going forward for households is to find housing arrangements and a monthly expenditure that is stable and, more importantly, sustainable without the assistance of borrowing to cover these costs. And although uncomfortable, most households are. More can be read about the cost of living in Canada (and its evolution) here: https://www150.statcan.gc.ca/n1/daily-quotidien/230117/dq230117b-eng.htm
We must adjust to the current cost of living because it’s unlikely to come down.
Post Your Comment: