Inflation has led to high indebtedness of the poorest class

High inflation has had little effect on consumption of non-essential services on average in New Brunswick. On the other hand, it has greatly aggravated the debt levels of the poorest 20% of households in the state.

You have to live with the theory, because everything is good in theory, according to some. You will have to live on average in New Brunswick.

Average recreation and cultural spending in the province increased by 46% from the start of high inflation in the second quarter of 2020 to the third quarter of 2022. Over the same period, restaurant and accommodation costs increased by 40%. , according to Statistics Canada.

On average, household net savings increased at the start of the COVID-19 pandemic, while the federal government increased its transfers to Canadians. It then declined until it became net debt in the first quarter of 2022 and bottomed out in the second quarter. Then New Brunswickers earned more than they spent in the third quarter.

“The average annual income in my class is $20,000. But if Bill Gates gets in there, this amount can increase to $1 billion, and my students always get the same profit,” explains Pierre-Marcel Desjardins, professor of economics at the University of Moncton.

However, Statistics Canada provides a more detailed look at the effects of inflation by categorizing households in New Brunswick from poorest to richest, by dividing them into five categories. Thus, the federal agency presents data by “income quintiles.”

The burden of the poor

These statistics show that members of the poorest fifth of New Brunswick households (the first income quintile) have suffered since high inflation began.

Their disposable income fell by 14% between the second quarter of 2020 and the third quarter of 2022. At the same time, their expenses increased by 12%. As a result, their debt increased by 93% (from $3,200 to $6,100 per family on average).

“When the poorest quintile has debt, there is a problem, Judge Mr. Desjardins. Inflation made this reality worse. But debt also has a limit. Is public policy appropriate? Statistics reinforce this need for reflection.

Growing inequalities

The Economist shows that prices have increased mainly in three categories of goods and services: transportation (13% in 2022 in New Brunswick), food (9%) and housing (7%). But two of those categories, housing and food, make up a significant portion of the expenses of the poorest, he said.

“They may have had more difficult choices to make in terms of spending,” concludes Mr. Desjardins. Inflation hurt the wealthy, but consumers had room to maneuver: for example, they could go to restaurants less often or travel less.

In fact, spending by members of the two wealthiest quintiles (40% of households in the state) increased by almost a third between the second quarter of 2020 and the third quarter of 2022. At the same time, their disposable income increased by 6 percent. . As a result, their net savings almost halved (from $8,600 to $4,700 per household), but left them with a cushion.

It is important to note that households in the poorest quintile are the only ones to see their average disposable income decline. Everyone else made more money between the second quarter of 2020 and the third quarter of 2022. Thus, income inequality increased by 23% between the poorest fifth of households and the richest fifth of households.

In New Brunswick, it’s better to be average. In no case should you be one of the poorest.

Troubled profits

The Canadian Center for Policy Alternatives shows that between 2020 and 2022, inflation has benefited businesses (particularly in the oil, gas and mining sectors) more than workers across the country.

“The 2022 federal budget introduced a new business surtax on banking and insurance, one of the three sectors that received more than half of every dollar spent due to inflation. […]. However, this surcharge should not yet apply to other industries that translate the benefits of inflation into corporate profits – oil, gas, mining and refining,” said David McDonalds, an economist at the independent think tank.

Across the Atlantic, the European Union has decided that energy groups must pay a “provisional solidarity contribution”. Thanks to this, Member States will be able to tax the exceptional profits of these companies. According to the European Commission, together they will be able to collect funds in the amount of 25 billion euros, which are supposed to be redistributed to consumers.

“In Canada, we should be more concerned about this,” says Pierre-Marcel Desjardins, an economics professor at the University of Moncton.

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