How will Canada’s soaring inflation affect you? What you’ll pay more for including groceries and rent

Canada’s annual inflation rate climbed to 5.7 per cent in February, the highest in more than 20 years — since Aug. 1991.

It was also the second straight month over 5 per cent.

But what does that mean for you? Whether you’re shopping for groceries or paying your mortgage, you’ll feel the impact of soaring prices.

To get more clarity, we got two economics professors, Stephen Foerster and Ling Sunto make it make sense.

What is inflation?

Inflation works by making money less valuable, meaning you have to spend more to buy the same things, Sun explains.

“When there is inflation, you have to spend more money to buy the same goods,” she said.

For example, something that cost $1,000 in February of 2021 would, on average, cost $1,057 a year later — the $57 increase corresponding to the recent 5.7 per cent annual inflation rate, Foerster adds.

A healthy inflation rate, necessary for the economy, is between 1 to 3 per cent, he added.

How will this impact me?

Most everything in our lives will be impacted by inflation. According to Foerster, this includes food, shelter, household items, clothing, transportation, health care, recreation, alcohol and more.

If prices rise faster than wages do, “we may need to adjust to a different lifestyle than we were used to,” Foerster said. “Those on a fixed income will be negatively impacted the most.”

To combat this, BC announced they’ll match minimum wage to inflation, and will raise their minimum wage to $15.65 starting June 1.

Foerster said inflation hits different depending on where you’re spending your money. In terms of different goods, for example, food had a steeper price increase compared to clothing and footwear.

At a rate of 32.3 per cent, gasoline saw the greatest price increase last year, according to Statistics Canada. Second was energy, comprising electricity, natural gas and more, at 24.1 per cent.

The smallest increase, at just 1.2 per cent, was the sector of clothing and footwear.

In terms of groceries, what can I expect?

Food was disproportionately impacted by inflation, Foerster says — on average, prices rose by 6.7 per cent last year.

But not all groceries were the same.

The meat isolate saw the some of the greatest increases, with prices rising 11.7 per cent. Butter was up 9.2 per cent, Foerster says.

Prices will also fluctuate according to supply and demand, he adds. Local goods are typically cheaper than those that are imported.

What about my bills?

“Monthly bills are affected the same way as grocery expenses,” said Sun, meaning they’re going up. “The only difference is you might not be able to cut down on utility bills.”

With energy prices soaring, Sun predicts utility costs may soon climb even higher.

According to Foerster, if inflation continues at the current rate, a monthly bill of $500 could be $528.50 in a year.

How will this change my rent?

Sun says landlords are likely to raise rent prices, if possible, to match inflation. When you might be impacted depends on whether you signed a long-term lease or not.

If you did, your rent will stay the same for now — but expect your landlord to increase your rent when you renew, Sun adds.

Will my mortgage be impacted?

Inflation won’t affect the amount you owe on your mortgage — but it could impact the interest you pay, says Sun. It’ll all depend on whether you have a fixed or a variable rate mortgage.

“If you have a fixed-rate mortgage, then you’re fine for now, until you need to renew,” added Foerster. If you have a variable rate mortgage, however, you may find interest rates starting to rise sooner rather than later.

“The Bank of Canada has already started to increase the benchmark rate and has signaled it plans to continue to increase it,” Foerster said. “This acts as a signal to banks to accordingly increase their rates.”

Why is this happening now?

“In 2020 we saw the onset of the pandemic, and in April and May, average prices … actually fell,” Foerster said.

“Much of the more recent inflation has been related to supply chain issues such as the scarcity of certain types of computer chips, which has impacted car prices,” he continued.

“Between January and March of 2021, inflation was back in the normal range of 1-3%. Then the economy started to recover as (consumer and government) spending increased. Prices started to rise considerably as consumers had stimulus checks, and also as prices of goods and services rebounded from the early pandemic lows.”

What else?

“People might not realize that inflation could impact our lives in the long run,” said Sun.

When inflation is too high, people tend to buy less, she explains. This in turn impacts businesses, which lay off workers to stay afloat. Increased unemployment leads to less buying, and so on.

What’s key, says Foerster, is not to overreact and assume that inflation will spiral out of control. If everyone stops buying goods out of this fear, it can quickly become a self-fulfilling prophecy.

“Keep calm and carry on,” said Foerster. “If we all keep our inflation expectations in check, then we can avoid an inflation spiral.”