Feel the vibe

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This article was published 07/12/2024 (363 days ago), so information in it may no longer be current.

Can you feel the vibe?

It may not be good vibrations this holiday season for consumers. Rather it’s the negative vibes of higher prices.

Inflation might be tamed from its heights in 2021 and 2022, but many may be wondering why it doesn’t feel that way.

Welcome to the vibeflation or vibecession era. These are terms often used by economists and politicians to describe an extended period where, although inflation may have normalized, the impact of previously high inflation persists.

“A big reason people are still feeling the effects is because even though inflation is back down to the target levels set by the Bank of Canada, we are still dealing with that big jump in prices,” says Abigail Jackson, research associate at the Institute for Research on Public Policy in Montreal.

“Over the last 3 1/2 years, we saw a particularly big spike in the cost of essentials: food, transport and shelter.”

The co-author of A Tale of Two Bread Lines: Rising Inflation in a Canadian Context, the 2023 Jack Layton Prize for a Better Canada-winning essay, points to the fact the Consumer Price Index (CPI) — the most widely used inflation barometer — grew 12.7 per cent from September 2021 to September 2024.

By comparison, CPI grew 5.7 per cent during a similar span from 2016 to 2019.

Yet, total CPI obscures sore spots. Those being food and shelter, which increased over the last three years about 20 and 19 per cent, respectively. In contrast, food prices grew seven per cent and housing 6.3 per cent from 2016 to 2019, Jackson notes.

(In the U.S, by the way, the increases are similar.)

It’s not just consumers still feeling pain. It’s businesses and even politicians for whom inflation/vibeflation is a double-edged sword, often toxic for those at the helm during high inflation and a potent tailwind for those seeking to replace them.

Notably, a majority of American voters chose to make the vibes great again, like in 2019, rather than voting for the “not going back” incumbent side — blamed fairly or not for high inflation that subsided months before the U.S. election.

In Canada, the Liberal federal government — also at the reins during high inflation — is trying to turn consumers’ financial frowns upside down. It recently announced a GST holiday from Dec. 14 to Feb. 15, 2025, on select items like beer, toys and Christmas trees.

The move does feel like fiscal theatre, unlikely to have much impact on households’ bottom line. Yet, that is sort of the point. The GST holiday and pending $250 cheques to everyone earning less than $150,000 annually are aimed at dampening the “vibecession” sentiment, as alluded to recently by Finance Minister Chrystia Freeland.

And many Canadians truly feel worse off. A recent Statistics Canada report found almost three in 10 aged 15 and older reported meeting their basic needs are more difficult today than in the past.

But don’t expect the Bank of Canada to bring down prices.

“That would often mean there is an economic backdrop that is less than ideal,” says Claire Fan, an RBC economist in Toronto. “To get prices to fall, we’d need to see a really bad contraction in the economy.”

A deep recession, in other words, generally entails many job losses, making dealing with costs — rising or falling — difficult.

CPI numbers, however, are not all bad.

In October, food prices were still rising faster than overall CPI, up 4.6 per cent in Manitoba, year over year, which was the second highest rate in Canada.

But prices for other goods and services were falling — like new cars (-0.6 per cent), cellphone services (-10.8 per cent) and recreational cannabis (down nearly 14 per cent in Manitoba, leading all provinces).

Yet, weighting in the overall CPI basket matters.

Weed may be cheaper, but its weight is 0.4 per cent — not to mention the majority of consumers don’t consume it.

In contrast, groceries make up about 17 per cent of CPI, and shelter accounts for about 30 per cent. Overall, housing costs increased five per cent in Manitoba in October, compared to 4.8 per cent for all of Canada. Rent increased six per cent.

The big pain is mortgage interest, up nearly 15 per cent — though down slightly from June, Jackson says.

She adds the high inflation rate is due to more mortgage holders renewing from ultra-low interest rates (two per cent) to more normalized levels (4.5 per cent).

Homeowners, however, are generally better able to deal with higher costs — which speaks to the unequal, lasting impact of inflation, Jackson says. “We are seeing growing inequality and across generations.”

Statistics Canada data show most household wealth is held by Canadians 55 years and older, and the top 40 per cent of the highest income households actually increased savings in recent years. But the bottom 40 per cent lost ground.

“We’re still dealing with the cost-of-living issue,” says David-Alexandre Brassard, chief economist with CPA (Chartered Professional Accountants) Canada.

Even the lowest earners, however, have seen some relief, given the minimum wage increases with inflation. “But it’s more problematic for those workers earning slightly above minimum wage,” he says, adding they may not see commensurate increases.

So while the GST holiday and other measures may lift consumer spirits a little this holiday season, they’re not a cure for many struggling households. Rather, they feel more like a struggling government trying to hold on to power trying to show it’s doing something to help, Brassard adds.

“But the problem is that everybody sees through their game.”

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com