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If you feel like you're suddenly paying more for groceries, fuel and ... everything else, you're right. And you can thank inflation.
Inflation is when the cost of goods and services goes up. While it's a normal part of economic growth, sustained high levels of inflation can make it difficult to afford the things you need. The Bank of Canada aims to keep inflation at 2%.1 To do this, the Bank can adjust its key policy rate up or down.
When the Bank of Canada policy rate goes up, other financial institutions will typically increase their rates on things like mortgages and loans, making it more costly to borrow money.
Since the start of 2022, the Bank of Canada has increased its policy rateopens in a new tab four times in an effort to control rising inflation. As of July 13, the policy rate sits at 2.50%.
Inflation is measured using the Consumer Price Index (CPI). The CPI looks at how the price of a basket of over 700 goods changes from one year to the next. There are eight major categories of goods and services meant to represent the average Canadian's household spending habits. Those categories include:
- Food: groceries, eating at restaurants
- Shelter: mortgage and rent payments, insurance, repairs, taxes
- Household expenses: childcare, internet, cleaning supplies
- Apparel: clothing, jewelry, footwear
- Transportation: vehicle, gas, car insurance, public transit
- Health and personal care: prescriptions, toiletries, dental, eye care
- Recreation, education, reading and leisure
- Alcoholic beverages, tobacco products and recreational cannabis
By comparing how much the price of the basket of goods costs today versus last year, the change in price (inflation) is determined.
Inflation has been rising through 2022, in June 2022 inflation in Canada grew to 7.7 per cent. Unfortunately, there are still no clear signs of slowing.
If you're wondering why Canadian inflation is so high, there are several contributing factors, including disruptions to the supply chain.
Other contributors include:
- Strong economic recovery from the pandemic is increasing the demand for goods
- Higher oil prices are linked to increased demand and disruption to the global oil supply due to the war in Ukraine. This contributes to increased transportation costs, which then hikes up the price of all goods
- Demand for single-family homes has raised the cost of housing
- Labour shortages are causing higher wages, adding to inflationary pressure
If you're new to Canada, you're likely feeling the impact of inflation in the same way as other Canadians. With the cost of nearly everything going up, your dollars simply don't stretch as far as they used to.
However, on top of soaring inflation, you might also be dealing with other challenges that accompany settling in a new country — starting a new job, meeting new people and adjusting to chilly Canadian winters. It can be a lot to handle.
A recent survey by Leger for the Institute for Canadian Citizenship (ICC) found 22% of newcomers were considering a move out of Canada in the next two years with one of the main reasons being the high cost of living.2
Increase in permanent residence fees
Another cost that is rising, thanks to inflation, is permanent residency fees. As of April 30, 2022, the Immigration, Refugees and Citizenship Canada (IRCC) increased fees for all permanent resident (PR) applications. This includes economic, permit holder, family and humanitarian classes.
In 2020, the IRCC decided it would increase PR fees every two years to account for inflation.3 While the cost of PR in Canada is in line with the fees charged by other countries receiving newcomers in North America and globally, this is just another cost that you have to absorb if you want to stay in Canada.
The Right of Permanent Residence Fee has increased from $500 to $515. Processing fees for each program have also increased. For instance, if you come into Canada on Express Entry, you'll see an increased processing fee of $850, up from $825. For a full list of fees, visit the Government of Canada websiteopens in a new tab.
Housing prices
If you've been trying to buy a house in the last two years, you've probably noticed the high price of Canadian real estate. According to the Canadian Real Estate Association (CREA), the national average home price increased by more than 20% since the previous year, hitting a record of $816,720 in February 2022.4 While the national price is heavily influenced by home sales in Greater Vancouver and the Greater Toronto Area (GTA), these are also two of the most common cities for newcomers to settle.5
The housing market is starting to normalize; however, the average national home price is just under $750,000.6 With rising interest rates, it's more expensive for new buyers to borrow for a mortgage. Similarly, if you already have a mortgage, it will be more expensive to renew.
How inflation affects international students
If you've recently come to Canada as an international student, you might be trying to juggle the rising cost of living on top of high tuition and restricted working hours.
If you have a study permit, you're limited to only working 20 hours per week during the regular academic year. With the average cost of international undergraduate tuition sitting at $33,623,7 making enough money to cover tuition and other bills can be a real challenge.
If you're feeling the financial crunch, know that you aren't alone. But there are ways to manage inflation, even as a student.
While it's up to the Bank of Canada to continue working towards reducing inflation on a national level, there are also individual strategies you can use to manage.
One way is to understand what is causing inflation. Look at what is driving inflation and what products and services are affected by it. You can then spend with this in mind.
Other strategies you can consider for dealing with high inflation include:
Update your budget
Review your budget and account for the increase in prices. See where you can make temporary cuts to help balance out higher living costs. For instance, can you reduce the number of subscription services you have so you'll have more money available for groceries?
Pause high-cost purchases and activities
If possible, hold off on making large purchases like buying a car or doing home renovations until prices stabilize. Similarly, consider pausing high-cost activities like driving cross-country on a road trip until the cost of fuel goes down.
Negotiate
Call your gas company or cellphone provider and see if you can negotiate a lower rate. If the provider isn't willing to budge, consider switching.
Bring in more money
Inflation can be easier to manage if you increase your income. See if you can negotiate a raise with your current employer. You might also consider starting a side hustle or taking on a part-time job.
In a recent speech addressing the newest Bank of Canada interest rate hike, Deputy Governor Paul Beaudry said, “Inflation is much higher than we expected and likely to go higher still before easing."8
This means Canadians will have to continue coping with inflation for the foreseeable future.
However, Beaudry ended his speech on a hopeful note, assuring Canadians that the Bank of Canada is working to bring inflation down.
“We know that every time Canadians fill up the gas take or buy groceries, it may feel as if everyday costs won't stop rising," he said. "But I want to assure you again that we will prevent high inflation from becoming entrenched. And we will bring it back down."
