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A woman shops for vegetables at a Loblaws store in Toronto, on May 31, 2023.Ammar Bowaihl/The Globe and Mail

You were force-fed 10 years’ worth of inflation in a short period of time – that’s why you feel your life is unaffordable right now.

Last week’s interest-rate cut by the Bank of Canada signals that inflation has fallen to acceptable levels. But in getting to that point, the cost of living has been permanently altered in a way that shakes people’s faith in economic prosperity. We need to better understand what’s happened so we can adjust both financially and emotionally because prices aren’t coming down.

Inflation’s impact can be seen clearly in three kinds of purchases – new vehicles, housing and food. Prices in each category have surged to levels that seem disconnected from what seems realistic.

The overall inflation rate increased by an average annual rate of 4.6 per cent from 2021 to 2024, Bank of Canada numbers show. A lot of pandemic-driven disruption happened during this period – interest rates were low and many people had money to spend after lockdowns were lifted. Strong demand for some goods overwhelmed supply, pushing prices higher.

Normal inflation used to look something like the average 1.6 per cent from 2010 to 2020. In a sense, the revved-up inflation of the past three years gave us close to a decade’s worth of price increases.

Inflation was down to 2.7 per cent in April on a year-over-year basis, which suggests a lot of progress in containing the rising cost of living. And yet, we remain in a state of disbelief about the value we get for the money we spend.

If you haven’t looked at new vehicle prices in a while, prepare to be shocked. J.D. Power reports that the average price of new cars, SUVs and light trucks increased to $48,300 over the past five years from $35,400, an annualized gain of 6.4 per cent. Average monthly payments are up as well – to a staggering $870 from $650.

Driver preferences are part of the story of rising vehicles. Because they’re so popular, SUVs command a price premium over cars. Light trucks are among the bestselling vehicles, but they’re even more expensive. Also, pandemic-driven parts shortages squeezed the supply of new vehicles and stoked demand in a way that gave dealers massive pricing power.

But the bottom line here is that the new vehicles people want to drive cost $48,300 on average right now, which is a hefty number. The same applies to what’s happened with rents.

The three-year average rent increase was 9.1 per cent, according to the latest numbers from Rentals.ca and Urbanation. Rents actually declined early in the pandemic, but they’ve rebounded with a vengeance.

The average rent for all types of property in May was $2,202, a number that undersells the cost in cities such as Toronto and Vancouver. A Toronto one-bedroom averaged $2,479 in May, and nine other cities in Ontario and B.C. were above $2,000.

The cost of buying a house has increased sharply as well. The average resale home price increased to $703,446 in April from $495,000 in the same month of 2019, which works out to annual average growth of 7.3 per cent.

And then there’s the edible aspect of inflation – groceries and restaurant meals. Statistics Canada data show food inflation averaged 6.4 per cent annually over the past three years.

There were points in 2022 when food prices surged by close to 10 per cent on a year-over-year basis. Food inflation was down to 2.3 per cent in April, but past price increases are baked in. There are still boxes of cereal going for more than $10 in your local grocery store – “jumbo” boxes, but still.

The declining inflation rate will bring good things such as lower interest rates and more stability for businesses and individuals in managing their finances going forward. Another positive for households in today’s economy is that wage increases are resisting the downward drift in inflation. The most recent numbers from Statistics Canada show average hourly wages for employees increased 5.1 per cent in May compared with the same time last year.

Provided we avoid a sharp recession, we could be moving into a more settled period for the economy and household finances than we’ve had since 2019. But a lot of people are looking backward right now and not liking what they see. Having a decade’s worth of inflation dumped on you in a few short years will do that.


Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.

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