British Columbians are worried about the rising cost of living, and rightly so. For example, in a May 24-30 poll of 1,203 British Columbians by Angus Reid, 66% of respondents cited “cost of living/inflation” as their top concern ahead of the October provincial election.

This blog examines data from the Consumer Price Index (CPI) for British Columbia. Specifically, it examines how consumer prices have changed since January 2019, a year prior to the COVID-19 pandemic, until July 2024. Two future blogs will look at food and shelter prices in more detail (food and shelter make up about half of all consumer spending).

How has B.C. fared?

Inflation has been high and broad-based. Figure 1 shows B.C.’s total CPI inflation overall by major product category since January 2019. Overall, consumer prices in B.C. are 21% higher than in January 2019. This is line with the rise in consumer prices for Canada (21%), and for the large provinces of Ontario (21%), Quebec (22%) and Alberta (21%).

Statistics Canada tracks eight major categories of products in the CPI basket. Shelter and food prices in B.C. are 29% and 27% higher, respectively, than 5½ years ago. Transportation (22%), health and personal care (20%), recreation, education and reading (20%), and alcohol, tobacco and cannabis (17%) recorded total price gains at or close to the overall CPI increase. Only two categories have seen little or no price change: household operations, furnishings and equipment (7%); and clothing and footwear (-1%).

Figure 1

Missing the mark

Had inflation tracked the Bank of Canada’s 2% per annum target, price levels would be only 12% higher than in January 2019. Figure 2 shows total “excess” inflation since January 2019, defined as price growth over and above 2% per annum (i.e., the solid-coloured lines in Figure 1 minus the dotted grey line).

There has been excess inflation of 10% over the past 5½ years. That is, goods and services in the CPI basket cost 10% more overall in July 2024 than they would if inflation had tracked the Bank of Canada’s inflation target. Four out of eight major product categories recorded excess inflation at or close to this rate. Two categories, shelter and food, which together make up about half (49%) of the B.C. CPI basket, have seen even higher excess inflation of 17% and 16%, respectively. Finally, two categories have seen price growth of less than 2% per annum: household operations, furnishings and equipment; and clothing and footwear.

Figure 2

Table 1 shows total and excess inflation since January 2019 alongside the CPI basket weights. Six of out of eight major categories (shown in red), representing around 82% of the CPI basket, have seen significant excess inflation. Again, only two major categories (shown in green), representing around 18% of the CPI basket, have seen inflation of less than 2% per annum.

Table 1: Most consumer products have seen excess inflation since 2019

Total inflation by major CPI category (%), Jan 2019 to Jul 2024, British Columbia

Watching our pennies

It costs 21% more to live in B.C. than it did in January 2019. Inflation has been broad-based and excessive. Six out of eight major product categories – spanning around four-fifths of the B.C. CPI basket – have seen prices grow faster than 2% per annum. A future blog will explore shelter and food prices in more detail. Two future blogs will look at food and shelter prices in more detail.

Political parties looking to their platforms for the October provincial election should be mindful of policies that add to pressure on prices and the cost of living. A good place to start would be for an incoming government to prioritise fiscal discipline. Specifically, this would mean committing to a fiscal anchor such as a plan to return to a balanced budget within three years, returning provincial debt to no more than 20% of GDP (projected to be 27.5% in 2026/27), or returning debt servicing costs to no more than 3-4% of expenses (projected to be 6.1% of expenses in 2026/27).

There are two reasons why fiscal discipline is important in addressing the cost of living. The first is to avert further increases in the province’s cost of borrowing. S&P Global has downgraded B.C.’s credit rating thrice in the past three years. B.C. government debt was rated “AAA” in July 2021 but is now rated “AA-” with a negative outlook. All else being equal, this means it will cost the government more to borrow to fund its spending plans. S&P Global has described B.C.’s budgetary performance as “the weakest of its peers, both domestically and internationally” (S&P Global, 2024).

A second reason is that this not a good time for governments to be stoking demand and contributing to inflation by running record deficits. At 1.9% of GDP, this year’s provincial deficit injects substantial stimulus into the economy and is larger than during the COVID-19 emergency – when large parts of the economy were shut down. As noted in Williams (2024):

In October [2023], the Bank of Canada governor underscored that “it’s going to be easier to get inflation down if monetary and fiscal policy are rowing in the same direction.” B.C.’s budget ignores those concerns and accelerates an already-unhelpful pace of spending and borrowing that is stimulative at a time when B.C.’s inflation rate is three per cent.

There is simply no reason to be running record deficits when unemployment is fairly low, the economy has little underutilized capacity and people are struggling to pay the bills because of inflation.

People are watching their pennies; it seems only fair to ask governments to do the same.

[1] See Angus Reid, June 9, 2024. The top five issues ahead of the provincial election were cost of living/inflation (cited by 66% of respondents), health care (52%), housing affordability (44%), environment/climate change (23%) and street crime/public safety (23%).

[2] Note, the CPI is a Laspeyres index, an index that holds quantities fixed while prices change. It is not a cost-of-living index because people tend to switch between consumer products in response to relative price changes. Changes in purchasing choices are not captured until the CPI basket weights are updated (the frequency of these updates was recently increased from biennial to annual). In seeking to understand changes in consumers’ purchasing power, this means we cannot strictly rely on CPI movements due to missing and partly offsetting “substitution effects”. However, when inflation is broad-based, as has been the case in the recent episode, concerns about substitution effects are somewhat less relevant.

[3] Note that CPI tracks final consumers prices inclusive of direct and embedded taxes on consumer products.