Summertime and the livin’ is easy. Perhaps not this year, as the cost of living is anything but easy.
Finally emerging from two years of lockdowns and restrictions due the pandemic, Canadians are now having to deal with other limitations in the form of rapidly rising prices that put a damper on activities, from a Sunday drive to the backyard barbecue.
Slightly moderated from record highs, gasoline prices remain well above pre-pandemic prices – and three times what they were when demand dropped at the onset of the COVID-19 crisis – and the cost of food is up some 10 per cent. Overall inflation is pushing eight per cent.
Moreover, measures to counter rising inflation – interest rate hikes – have already had an impact on consumers, raising the price of borrowing, from mortgages to car loans. On the upside, rising interest costs have seen some softening of housing costs, down almost 10 per cent in the market here, though still well beyond the reach of many.
Larger increases in interest rates could help drive down the cost of housing and perhaps both counter growing personal debt levels and encourage more savings.
That’s cold comfort, however, to those of us having to deal with the likes of food prices rising much faster than our incomes.
While some companies have been using inflationary pressures as cover to increase profits – corporate pre-tax profits hit an all-time high in the last quarter of 2021, $139 billion, and almost that much, $138 billion, in the first quarter of this year – inflation and consumer choices could have a big impact on small businesses already struggling due to the pandemic.
A new survey carried out by Ipsos for MNP Ltd., the consumer debt index, found that almost 60 per cent of Canadians are feeling the effects of the current economic situation. We’re being forced to make tough decisions to make ends meet.
The survey found nearly half (46 per cent) say they are cutting back on non-essentials such as travelling, dining out, and entertainment, while one-third are buying cheaper versions of everyday purchases (37 per cent) and driving less (30 per cent). More than a quarter (27 per cent) are making the difficult decision to cut back on essentials such as food, utilities, and housing.
The report finds Canadians could be in for a rough rest of the year, with half saying that if interest rates go up much more they will be in financial trouble.
We’re already feeling the pain, and there’s more to come. The tendency will be to blame government for our woes, though that’s not completely fair. The economic conditions are a global issue, exacerbated by Russia’s invasion of Ukraine, that can’t be laid at the feet of any one national government.
What we can expect of governments here – national, provincial and municipal – are efforts to ease the pain of citizens. That means not raising taxes in the face of inflation, which is a short-lived phenomenon that doesn’t warrant permanent tax increases – governments never roll back their bad decisions. Rather, they should be reducing spending, paying down debt (which eventually helps with interest rates) and reducing taxes.
Given the strong job market, now is the time for governments to cut payrolls as part of an overall effort to reduce the burden on taxpayers.
Now is the perfect time to reduce government dependency on both borrowing money and hitting taxpayers in the wallet to pay for every ill-conceived program. Rising interest rates mean debt payments – already a top drain on tax dollars – will only increase as Canadians are already paying for long-past spending that provided little benefit.
Global economic upheaval is beyond local control, but getting a handle on spending, concentrating on what’s essential to all rather than a few, is something governments here can and must do.
The real failures of government can only add to the summer of our discontent.