Cost of Living

In Canada, the official 2020 ‘inflation’ rate was 1.95% or, as I like to think about it after adding inflation to that number – it makes it an even 2%. But, of course, the official inflation rate has always been a lie or, better put, a generalized guess at some fictitious household lifestyle cost that seems to vary monthly and with your location. This time is no different. The cost of living in Canada is likely to be higher in 2021 and will only get higher again after the economy gets back on track.

Why is it a ‘lie’? Well, the basket of goods the government uses is very unlikely to reflect the actual basket of goods you or I purchase. Generally speaking, we all face different costs in life. Also because housing, transportation and food make up the three largest components in the theoretical basket and all three have been rising significantly more than 2%. In BC and Ontario housing costs factor in even more hugely and they have also risen more hugely this past year. As has gasoline which seems to defy the laws of supply and demand.

Put more succinctly: everything I buy is more expensive except my shelter. That’s paid up. But I like to do small building projects and that requires wood and wood, of all things, has literally doubled in price this year…tripled when it comes to plywood. Wood is now so expensive people are NOT doing little projects like sheds and decks.

Canadians are, of course, driving less under Covid restrictions but gasoline prices have remained high. It is $1.42 a liter in Campbell River or approximately $5.50 a Canadian gallon. In Phoenix, Arizona, the price per US gallon is US$2.80 a gallon. That is not a fair comparison, however. The US gallon is 4/5’s the size of a Canadian gallon and the Canadian dollar is worth approximately US$ 0.70. I am just estimating/guessing but factoring in exchange and gallon size, the American driver pays maybe C$4.25 cents for the same gallon that we pay almost $5.50 for. Whatever the math, we pay more than they do. ‘Course, we pay more for food, too. And they pay considerably less for housing as a further bonus.

“Why state the obvious?”

Well, both Canada and the US have infused the economy with massive cash bailouts and other stimulus for their economies. That’s heaps more debt to pay off and so taxation will go up. Taxation is not separately included in the basket of goods sample. In addition, the world is in economic turmoil right now and the capitalist mindset is to gouge when the gouging is good. And it seems pretty good-for-gouging on the gas, house, lumber, food front. I think our real cost of living increase in 2021 will be closer to 5-6%.

There are some offsets to that way of thinking. Dining out will remain depressed. And dining out is a big component of the urban Canadian lifestyle. And that change in behaviour will translate through all aspects of the consumer product sales world. We will spend less on discretionary purchases. Travel has also been curtailed so that may compensate for the price of gas – we just drive less, too. Still, all things considered, I think our cost of living will increase, our taxes will increase, our economy will suffocate and the Canadian dollar will drop. None of that – if true – bodes well for the next couple of years.

How do we cope with that restricted lifestyle? I don’t know. I don’t quite live that lifestyle anymore, anyway. I already do NOT go to restaurants, fly to foreign places, drive all over the place and/or spend-for-convenience. But I do build sheds and I will likely continue to do that sort of thing if I can (I am planning at least one more). I do not think my life will change too much. But it will change in a few places that will hurt. Car travel to see my grandkids will lessen (it already is down to about maybe four times a year). Snowbirding seems out of the equation for awhile. Wine consumption is up. Taxes for next-to-nothing will go up.

If I summarize this blog into a punchline, it would be: “We’ve been punched and punched hard. We are still reeling from the blow. Can we get our head/economy/health clear and focused before the next blow comes? Or do we take a double whammy?”

23 thoughts on “Cost of Living

  1. Interesting.
    I had a similar conversation about the “Cost of Living” last week.
    with a co-worker.
    Personally tI feel those number should be redefined as “Cost of Existing” because “Living” has so many more connotations…

    And, let’s face it…. the govt really doesnt care about the average person until their “C o L” numbers indicate inflation is becoming a problem for tax collection.
    If things cost too much (food, fuel, cars, insurance, restaurants,…. houses?) …people stop buying.

    The great experiment in economics.
    Trying to determine when to raise or lower interest rates to stimulate or cool off the economy.

    Well, judging by the amount of cash sitting in Canadian Bank accounts after $90 BILLION dollars in CERB handouts in 2020 ( that has created record levels of Canadian savings rates after decades of squandering money….which begs the question, “How many people REALLY needed CERB?”) and then the natural propensity of all people to “go crazy” when they are finally allowed out of their Covid cages……..
    So in 6 months when everyone has been Vaxx’ed at least once, the bars, restaurants, hotels, schools, factories, etc etc etc….will open.
    Prepare for rising inflation, rising Bank of Canada interest rates and a sudden collapse in the insanity that is Canadas Housing market.

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  2. Where did I see this ” that thousands of young adults are only $200 away from disaster”, only if they do not have parents to help I suppose. A survey on whether or not house prices should drop surprised the polling company in that the majority of polled people would except a 20% drop in house prices and some even more. The same poll mentioned the high number of younger adults who have given up ever owning a house. To top this off our trade with China is better than ever even thought they have banned canola which has been a misnomer.
    Just glade I (we) are retired old farts not having to deal with most of the fallout from covid.

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    • I heard it was $300 but, regardless, most young-ish people live month-to-month and slowly slip into debt which then keeps them in that ever-deepening hole. If they start with student debt and get their degree, they may have a chance of climbing out of it but, otherwise, there are decades of struggle.
      And it shouldn’t be this way. In effect this is tantamount to subtle but just as biding slavery. One’s best chance of getting out from under is, well……..getting out. There are debt traps in small towns but the great mortgage trap is usually a lot less. I recall marveling at Saskatchewanese vacationing in Mexico for months at a time. “Sheesh, man. I travel like a hippy and you are driving a 50 foot travel home complete with all the modcons. How can you do that?” “Well, houses in Saskatoon are 1/10 the price they are in Vancouver. We paid our house off a long time ago. Even bought one for our daughter. Our wages are a bit less but not ten times less. We have disposable income. So we dispose with some of it every winter for three months.”
      The price of living in Vancouver is higher than the accountants know. It is also life-draining.

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      • I do not know for sure. I will posit that there WAS a bit of tax loophole in the primary residence exemption that made ‘trading’ in houses a bit of a business – a better, simpler, profitable and untaxed business. That loophole has now been constricted with CRA all over people trading up or down and making money that goes untaxed. Still that constriction is only a year or two old. Then there is the fact that Canadians are so financially limited in all other ways that they could not save – but they could ‘kinda’ save by buying a house. Add in the Asian influx (Indian and Chinese) and then there was an increased demand – and that has been going on for decades now. But, to be fair, I really do not know. Could it simply be that the countries we were compared to are having worse problems? Italy, for instance, which includes gorgeous villages ended up at the bottom and yet Canada includes Lethbridge, Moosejaw and Winnipeg but remained at the top? How does that happen? Was it partly Covid? Frankly, the snow, the freezing temps, the mosquito count and the tax rate would be enough for me to go to Italy before Winnipeg or Barrie Ontario. For me, the best part of Canada is where I live. But, I must admit that having so much room (second largest country in the world) in which to roam without others nearby is a huge plus.

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  3. I think we have witnessed over the years recession after recession yet our area seems unaffected can it simply be we are the best place in the world to live? West coast of course.

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    • I do not think so. I checked out real estate in Italy, the worst on the list and it was all at Eu400,000 or more (mind you I looked in Tuscany) . So even tho Italy dropped in the percentage race, they are still very close to the Canadian average. Germany was (in the chart) at a minus rate for awhile and yet I have friends there who cannot afford to buy a house. This may, in fact, be the great equalization as a result of migration…?

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  4. There was a documentary on BC/Vancouver. Main message was that all houses were being bought by Chinese (Hongkong), driving up prices. The “average” Canadian could only afford a caravan or an appartment in the basement. Maybe a bit exagerated? Over here, prices are going up at a stunning pace. For young adults, buying a house has become virtually impossible. Since COVID, everyone wants to buy a house with a small garden. So now, a potential house for sale is visisted by at least 50 couples. Each hands over an envelop (closed) with their final bid. The 50 envelopes are opened, and the highest bidder gets the house, no more negotiations possible. And if you hear afterwards the selling prices….overpriced as hell….so another real estate bubble in the make?

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    • The Chinese buyer is omnipresent in Vancouver and Toronto, that’s for sure. They are a factor. But they are mostly a factor in the better locations. Not a lot of Chinese in Surrey, for instance. No longer overwhelmingly white in West Vancouver, either. Altho Middle Easterners like West Van, too. I am sure the foreigner ‘influx’ is a huge factor but, don’t forget, we have 37M people and a proportionate amount of housing. So, even with a few thousand driving up the prices in the best parts, why is all of Canada going up? Are folks selling their house for the UNGODLY amount of $1M only to have to go buy another for something a bit more or less?

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      • The latest housing price insanity started in the late Fall 2020.
        Covid “Work From Homers” selling and fleeing the big cities?
        Fed up with mask Nazi’s screaming at them as they walk down the sidewalk unmasked?
        They want their kids to be able to play unmasked in a park, forest or beach?

        Either way.
        This latest ridiculous ramp up of Canadian housing “values” is unsustainable.
        When a couple making $200-400k per year cant handle the grossly mortgage payments…..
        And watch the govt as the covid lockdowns end in the next 6-12 month….and people go roaring back into restaurants, bars, vacations, buying toys, etc.
        Inflation beckons.
        Inflation breeds higher interest rates….and if people are barely handling their mortgage payments now….
        Stick a fork in this bubble.
        It’s done.

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      • House prices are a function of interest rates. Lo/High rates equal high/lower prices. It’s cashflow. It is always just cash flow. So, with interest rates at 2% the house price can double from one purchased at 5% simply because the monthly payment is the same (or close). But that means a person is signing on for a $1M debt (at 2%) that will crush ’em if rates go up to 5%. Middle aged and older folks know that so, if they buy anyway, they are ready to sell and run at the slightest indication of a rate hike. That makes for a ‘hot market’. A younger person with kids in school and a demanding but NOT high remuneration employment is trapped by their mortgage. 30 year-olds waiting tables and driving Uber simply cannot get into the game. Those that can, are setting themselves up for ‘stress’ in the future. If this madness is sustainable it is only because we have enough new Canadians coming in to displace the young Canadians who are having to form the new rental market. The answer, of course, is to do what some other countries have done – foreigners cannot own land. That is not as unfair as it sounds – they can be ‘residents’ for say five years, get citizenship and then buy land. That kind of rule also stops the foreign landlord who doesn’t even live here.

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      • “Whatever” helps keep the numbers up but it does kind of dilute the otherwise brilliant content….ya know? And isn’t “Whatever’ a term used mostly by spoiled urban teen age girls at the mall?

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  5. Grab the golden ring. Canadian real estate is seen by many as better than money in the bank. When a house increases in 10% or more in one year speculators feast. “the market is always right” isn’t it? Bulls and bears!

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    • Well, kinda….cognitive dissonance is a term used to describe conflicting thoughts in one’s own thinking. It is a personal-conflict issue. I suffer from a bit of CD myself…..I always vote but find it futile, frustrating and NOT truly freely choosing a good representative. I think money is a real problem in itself and yet not having any is also a problem and, in my opinion, having too much is yet another problem.
      There are so many conflicts…so little time….

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      • True but too much money isn’t as stressful as too little cash.
        Hence Prince Phillip living to the ripe old age of 99…….and I’m sure the Queen with out do him.

        Methinks the Royals never give a moments thought to the price of bread, booze or fuel…..

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      • Dave you are right. Most of us are conflicted. During this pandemic what some politicians said in public sometimes did not match their private views. Some face private/public dissonance in their thoughts and actions.

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      • I’ve thought about Phil and Liz ll a bit. And I cannot imagine a worse life. Oh yeah, rich, rich, rich but what for? Do they have fun with all that money? Do they ‘adventure’ and ‘risk’? Do they get to eat pizza and beer and watch shoot ’em ups where all the cars blow up? Has the Queen seen Blues Brothers? Really, what the hell can the Queen actually do? Can she skinny dip, pee in the forest, flirt, fight or even, for that matter, throw her opinion around? A bird in a gilded cage is just a jailbird, after all. I would not like to be incarcerated………….and she is.

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