By Veeno Dewan
Nearly 45% of Canadians report that inflation and the rising cost of living have significantly affected their ability to cover day-to-day expenses. Adjusted for inflation, prices for almost everything are 12 percentage points higher than they were two years earlier (33%). These results are based on a report from the Canadian Social Survey. Major concerns for Canadians, according to the study, are food affordability, housing, transport, energy, and general living expenses.
The report also reveals that unaffordability and the financial strains as a result of inflation negatively impact mental health. More than one-third (35%) of Canadians reported that most days are quite a bit or extremely stressful due to financial issues.
Rising prices also have a disproportionately negative impact on lower-income individuals in Canada. The report also shows that more than half of younger adults are experiencing greater financial difficulties and are more concerned about rising prices, especially those related to housing.
What causes inflation?
The primary factors that cause inflation cannot be attributed to a single reason; instead, multiple contributing factors are at play. Inflation is not about a single product increasing in price or the simple laws of supply and demand, but rather a broad-based spectrum increase across many goods and services in an economy. As prices rise, the value of money decreases, meaning your dollar doesn’t stretch as far as it previously did. If wages stagnate or fail to keep pace with inflation, “stagflation” occurs, meaning paychecks don’t stretch to meet the cost of living.
Inflation is both a financial and socio-economic issue with global implications, affecting countries to varying degrees. During the COVID-19 pandemic, the full effects were evident as the global economy shifted suddenly from services to goods, impacting the global supply chain. More recently, Russia’s invasion of Ukraine, U.S. President Donald Trump’s threats of increased tariffs, and war tensions in the Middle East have made inflation surge even more.
What are the effects of inflation?
High inflation can negatively impact consumers as their purchasing power decreases, making it harder for them to afford necessities. A low and stable rate of inflation (around 2%) is generally considered a sign of a healthy economy, both stimulating spending and growth. This is the target the Bank of Canada has set for the last two years and into the future.
Inflation in Canada.
In Canada, inflation is primarily driven by a combination of global and domestic factors. These include geopolitical instability and tensions, trade and tariff wars, global supply chain disruptions, increased demand for goods and services, and rising production costs. Factors such as the pandemic, the war in Ukraine, and extreme weather events have all contributed to exacerbating these pressures, as well as rising costs for raw materials, energy, and labor, which are passed on to consumers through higher prices.
What Canada is doing – The Central Bank of Canada and the Federal Government
As the country’s central bank, the Bank of Canada’s monetary policy decisions to control inflation take into account global economic conditions and domestic supply and demand dynamics. To control inflation, the Bank of Canada primarily uses monetary policy, specifically adjusting the policy interest rate. This involves raising interest rates to reduce borrowing and spending, thereby curbing demand and slowing down price increases. The hope is that raising this interest rate makes borrowing more expensive for consumers, encouraging them to save and reduce spending, which helps cool an overheated economy and bring inflation down. While the Bank of Canada primarily handles monetary policy, the Canadian federal government also plays a role through fiscal policy, which involves government spending and taxation.
Individual Strategies: How to Combat Inflation.
With no control over interest rates and the prices of groceries, goods, and services on an individual level, creating a budget and tracking expenses can help consumers identify areas where they can reduce spending and combat inflation. Investing in assets that outpace inflation, such as stocks, shares, real estate, or inflation-protected bonds and hedges, can help protect savings from the eroding effects of inflation.
The good news is that, over the last few months, the Bank of Canada has been meeting its target to combat inflation. Inflation is unchanged at 1.7% in May 2025, according to Statistics Canada. The Bank of Canada’s governor, Tiff Macklem, said the central bank would be paying closer attention to see what is happening to inflation amid U.S. tariffs.
Macklem said, “We will continue to watch developments in the economy very closely. We are committed to getting inflation back to 2% by the end of 2025.”
Sources –Statistics Canada, Government of Canada, Bank of Canada, Canadian Consumer Price Index, Canadian Social Survey, Inflation Trends Canada, Quality of Life Framework for Canada 2024 Report.
