Seniors, low-income earners among those most impacted by rising inflation, economists say

Canada is experiencing a rate of inflation not seen since 1983, but economists say not everyone is experiencing it in the same way.

Canada’s inflation rate -- an increase in the cost of goods and services measured by the consumer price index -- hit 7.7 per cent in May, according to Statistics Canada, driven by a combination of increased cost of living, supply chain issues and Russia’s invasion of Ukraine.

How acutely each person feels the effects of an increasingly expensive basket of goods services depends on their income level, which goods they spend the largest portion of their budget on and their overall financial vulnerability, according to economists Rachel Samson and Kevin Milligan. Samson is the vice-president of research at the Institute for Research on Public Policy, and Milligan is a professor at University of British Columbia’s Vancouver School of Economics.

WHO IS MOST AFFECTED?

Canadians whose household budgets are mostly spent on necessities like food and shelter are hurt most by inflation in the short-term, said Samson. Compared to 2021, the cost of food in Canada was up by 9.7 per cent in April and May, while the cost of shelter was up by 7.4 per cent, according to Statistics Canada.

“In large cities, around 60 to 70 per cent of low-income renters spend more than 50 per cent of their before-tax income on rent. This leaves little room for additional food costs,” Samson told CTVNews.ca in an email on Friday, adding that low-income earners who need to drive to work face additional challenges in the short term with rising gas prices.

Among the most vulnerable low-income earners, Samson said, are disabled working-age adults who struggle to afford basic necessities without the pressure of inflation, as well as visible minorities, who she said experience higher poverty rates relative to the general population.

“The poverty rate amongst visible minorities is almost double that of non-visible minorities,” she said. “For some ethnicities, it is triple that of non-visible minorities.”

Milligan, who specializes in labour economics and the economics of children and the elderly, said he is concerned about anyone who relies on fixed income sources, such as senior pensions or disability benefits, which don’t increase in lockstep with the cost of living.

“For people who are on pensions, some of those pensions don't even have adjustments for inflation. It's quite common in the private sector,” Milligan told CTVNews.ca in a phone interview on Wednesday.

“But even the ones like the public pensions that are indexed for inflation, the cost of living updates to those pensions tend to lag a bit. It reflects what happened six months ago, or a year ago, not what's happening today.”

IMPACT ON STUDENTS, FAMILIES

Since inflation can raise the price of virtually any good or service, Milligan said its effects touch many segments of the population, from students to homeowners. For example, students, like other people whose budgets are mostly allocated to shelter, are affected by rent increases.

“I know here in Vancouver rents have gone up substantially over the last year, and that's going to affect students for whom that's a big part of their budget,” Milligan said.

Miligan said families are vulnerable to changes in the cost of food and fuel, the latter of which increased by 48 per cent in May compared to last year. Anyone who consumes gasoline, natural gas or propane is affected by energy prices, which rose by 34.8 per cent in May compared to last year, according to Statistics Canada.

Samson noted that homeowners may also be susceptible if inflation persists and leads to a recession.

“Homeowners that stretched to buy a home could be squeezed by rising interest payments on debt and the falling value of their home,” she said.

Samson and Milligan are divided when it comes to single working adults. Because this group tends to have a higher incidence of poverty and less access to benefits, Sampson said single working adults are vulnerable to the effects of inflation in the short term.

While Milligan acknowledged that single adults are affected by inflation, he said they can respond with more flexibility than students, seniors or families. For example, if they’re willing and able, they can take on additional work to supplement their income, should work be available.

"They have a bit more flexibility to work a bit more, to pick up some extra hours, to try to earn some more income,” Milligan said. “So that's why that group in general might be a bit more able to handle things.”

ADDRESSING INFLATION

Samson, whose organization is concerned with influencing public policy through research, says governments should look at who is most vulnerable regarding inflation and develop policies targeted towards those individuals and households, as well as increasing existing benefits.

“Broad based measures such as reducing gasoline taxes are not efficient, as it is not clear how much of the tax reduction will flow through to consumers, and it benefits higher income consumers,” she said.

“Measures such as those being implemented in Vancouver that subsidize electric bikes for low income people, or subsidized transit passes for minimum wage workers, may be more effective.”