Scotiabank Economics forecasts how much purchasing power Canadians will lose amid raging inflation

In case you haven’t noticed, your money buys you less nowadays.

Prices of goods and services like groceries and housing have gone up.

Economists call this as inflation.

In February 2022, Canadian consumer prices increased 5.7 percent year over year.

That’s up from a 5.1 percent increase in January.

As Statistics Canada reported on March 16, the 5.7 percent inflation rate was the “largest gain since August 1991”.

In August 1991, inflation went up six percent.

Where is this going?

A report Monday (March 28) by Scotiabank Economics provides an answer.

René Lalonde wrote a paper titled “Wages to Lag Inflation and Productivity Growth in 2022, Catch-up in 2023”, which gives a hint about what lies ahead.

“In 2022, we forecast that total compensation per hour worked will grow by 4%,” Lalonde stated.

That’s good, but it’s not going to be enough.

“This is well below our inflation forecast of around 6% for the year and falls farther short of economic fundamentals when incorporating expected productivity gains,” Lalonde wrote.

And this is bad news, especially for households struggling to make ends meet.

It’s because inflation hits poorer people harder than it does the wealthy.

“Therefore,” Lalonde stated, “we forecast an important and persistent 3% deterioration of the household net purchasing power and an increase of the net cost of living that will continue beyond 2023.”

The Scotiabank economist has a suggestion.

“This may justify temporary provincial and federal income assistance targeted mainly to low-income households,” Lalonde wrote.

Next year might be better.

“We anticipate that total compensation per hour worked growth will accelerate to around 6% in 2023 to partially close the wage gap with inflation and productivity,” Lalonde wrote.