Many people wonder why they have such perpetual empty pockets. There is minimal price inflation, interest rates are low, yet at the end of most weeks, there is little left over for extras.
There are several possible explanations, and one of them may surprise some people.
While a letter to the editor last week suggests that more people need to be financially literate, that is only a part of the puzzle. A lack of wage growth for most working people, other than government workers, is another part of the puzzle, but again it only explains a portion of the problem.
Perhaps the missing link in the puzzle, which isn’t properly explained, is just how inflation is calculated. According to the Bank of Canada, the official inflation rate is based on a basket of consumer goods, including food, shelter, furniture, clothing, transportation and recreation.
The federal government has been keeping track of prices on that basis since 1914. The first real inflation in Canada took place during the First World War, when prices rose to higher levels because of wartime shortages.
Canadians were hit brutally by inflation in the 1970s and 1980s. At one time, interest rates were over 20 per cent — and inflation was close to 14 per cent annually.
Those days are long past us now. Inflation has been at low rates for years, and interest rates are much the same. As a result, people have borrowed more money than ever — much of it to buy homes. Nowhere is that more true than in the Lower Mainland.
Interest costs are thus draining a good portion of peoples’ incomes. But the fact that inflation isn’t being calculated on some of our costs may be an even bigger factor behind our empty pockets. Low official inflation rates mean employers don’t feel the need to give wage increases and governments feel there is plenty of taxing room.
Taxes are not considered inflationary. Thus steady jumps in medical service premiums in B.C. are of no consequence. Nor was the HST, which added tax to many items that formerly only had the GST applied.
TransLink’s boost to the gas tax isn’t considered inflationary. Nor is the carbon tax.
In recent years, the biggest contributors to our empty wallets are governments. But they get away with it, because there’s minimal “inflation.”