Fifth in our COSTLY LIVING series of stories about the rising cost of living and how people are coping.
When it comes to getting nickel-and-dimed every which way you turn harsher, more off-colour terms than “inflation” come to mind.
But that’s what’s happening when your cash doesn’t have the buying power it used to. Thanks to inflation, we’re all experiencing costlier living on all fronts. For many of us it’s more out of necessity than diligence, or simple prudence, that we’re having to keep a closer eye on price tags for pretty much anything we might want – or need – to purchase, and to shop around for deals in an effort to make ends meet.
Dr. Lucas Herrenbrueck, an associate professor of economics at Simon Fraser University, says that simply put, inflation is “when prices go up.”
“It’s a number that you have to calculate because the prices of different things aren’t going up at the same speed or some of them might be coming down,” he notes. “As a result there has to be some calculation and there’s a statistics office that does that and then they release those numbers.”
Most will agree, though, that as time marches on, dropping prices are more the exception than the rule, and our reaction to prices is relative.
For example, today having to pay $2.00 per litre at the pumps might now be considered a choice deal considering it was just recently $2.30, but last year such a price would have been deemed highway robbery.
If we travel in time back to May 13, 1931, an ad in the Surrey Leader reads “Only $10.00 cash and $10.00 a month buys Fine Lot View on Columbia Ave. Full price, only $130.00,” and another ad in that same issue offers “To Rent, comfortable bungalow on New McLellan Road, $15 per month.”
It seems incredible now but for some people, those prices would no doubt have been expensive in those days, particularly during the Great Depression. Considering all prices together, Herrenbrueck notes, it’s “definitely common” that they go up.
“The Bank of Canada has a positive two per cent inflation target, we can talk about the pros and cons, but that’s their target. But the prices of individual things are going down all the time.”
The relationship between interest rates and inflation, the professor notes, is “not a direct one. Interest rates control the pace of the economy as a whole, so higher interest rates will slow down the economy. That’s mainly through loans, people getting mortgages and businesses getting loans to invest. So higher interest rates make that harder and therefore they slow down the economy.”
Inflation, Herrenbrueck explained, is like a thermometer in a car.
“High inflation is a sign that things are running hot and they need to be cooled off and low inflation is a sign that things aren’t running hot enough, so inflation is taken as a sign that the economy is running hotter than it can sustain and the higher interest rates are like splashing cold water on it.”
So where are we now, on that metaphoric thermometer?
“Nobody I think saw inflation this high coming,” Herrenbrueck told the Now-Leader. “I didn’t. I couldn’t have predicted this. I’m sure your readers already know it’s the highest its been since the 1970s, early ’80s. However, I always hasten to add when people mostly think about the early ’80s they don’t think about this as a terrible time. So high inflation is not a good thing, but it’s not the only bad thing in the world and low inflation isn’t the only good thing in the world.”
In the 1980s, the average worker’s wages were higher relative to that of rich people, Herrenbrueck noted.
In general, salaries have not been going up correspondingly to inflation.
On June 1, the provincial government raised minimum wage to $15.65 per hour, up from $15.20. Though that’s the highest of any province, just try living on that when the average rent for Canadian properties, as listed on Rentals.ca in April, was $1,821 per month – up nine per cent from $1,676 per month in April 2021.
In 2021, six per cent of workers in B.C. – that’s 136,300 people – earned minimum wage or less, according to a provincial government press release. The increase to $15.65 per hour is tied to the province’s average annual inflation rate which, from Jan. 1 to Dec. 31, 2021, was calculated at 2.8 per cent.
“With inflation the way it is, we’ve all been making changes to how we spend, but there are some expenses we can’t change,” says Rekha Chander, a janitor quoted in that same release. “Getting this increase really makes a difference to me and my family, so we don’t feel like we’re falling behind.”
According to Rentals.ca and Bullpen Research & Consulting’s latest National Rent Report, the average monthly rent in April for a one-bedroom home was $1,655 and $2,080 for two bedrooms. The report indicates that, month-over-month, in April the average monthly rent in Surrey for a one-bedroom home was up 6.6 per cent and by six per cent for a two-bedroom dwelling.
“Average rental rates for single-family homes, townhouses and condominium apartments have experienced strong month-over-month growth as demand increases for higher-end properties,” says Ben Myers, president of Bullpen Research & Consulting.
“Big city rents are surging with Vancouver and Toronto leading the way. A return to the office, high gas prices, and rising interest rates are all fueling demand for centrally located rental offerings.”
Meantime, Herrenbrueck notes, a steady maintained pace of inflation where wages are going up in tandem with prices doesn’t have as big of an effect.
“It just means you shouldn’t keep your money under the mattress,” he said.
“If the prices of everything are going up at a smooth pace, then that’s not really a problem. What’s affecting people right now is prices have been going up so fast and wages haven’t, so wages are definitely looking to catch up but until they do, everybody’s got a little less money to spend.”
A significant part of the problem is the availability of goods.
“Before you’re blaming inflation on any one person who can do something about it, you’ve got to remember that the economy is always going to have good times and bad times, just like the weather is going to be nice and sometimes it isn’t going to be nice,” Herrenbrueck said.
What kind of weather, then, are we currently experiencing?
“Not horrible at all. If you’re looking at the employment figures, for example, when the pandemic hit we were worried that this would set back the labour market for a generation and instead, many sectors have been having actually worker shortages so a lot of people have jobs right now, that’s a lot better than in 2020 and a lot better than it was in 2010.”
Following Surrey Mayor Doug McCallum’s State of the City address on June 1, a reporter asked the mayor what the City of Surrey is doing about inflation.
McCallum replied Surrey has signed an agreement with the provincial government, TransLink, Langley City and the Township of Langley to build “all range” of housing – low-rent, average-rent housing, condominiums, highrise towers and shelters for the homeless – along the SkyTrain corridor, along Fraser Highway.
“Housing certainly is one of our top initiatives that we have to look at as we go forward over the next four years,” McCallum said.
But as for today’s real estate market, the Bank of Canada recently raised its lending rate to 1.5 per cent, making for the third hike in 2022, following one in March and another in April.
HouseSigma, a new AI-powered real estate platform in B.C., noted that the Bank of Canada “has hinted” it could raise rates to three per cent or more to target rising inflation.
“We’re now starting to see the full effect of rising interest rates on buyers and sellers’ habits,” says Hao Li, a HouseSigma broker. “These double digit dips in detached home averages in areas like Surrey and Maple Ridge highlight the pullback that’s happening in B.C.’s market.”
“Buyers scrambled to find a property during the pandemic, raising prices at a pace we’ve never seen before. Since the Bank of Canada started raising rates, buyers have steadily taken a more ‘wait-and-see’ approach to buying a home, and sellers have had to adjust their sale price expectations.”
According to data compiled by HouseSigma, as of June 1, average detached home prices in Surrey dropped by 14.21 per cent.
Jamie Squires, president of Fifth Avenue Real Estate – Metro Vancouver and Fraser Valley, based in Fleetwood, spoke with the Now-Leader Friday (June 3), when the prime rate for mortgages was at 3.2 per cent, up from 2.8.
“Basically it reduces everyone’s buying power, right,” she said of rising interest rates.
“Basically the higher the rate, the less you qualify to borrow for a mortgage or for lending purposes, so it is having an effect on basically the amount that purchasers qualify for.
“I haven’t seen (buyer’s) remorse yet,” Squires said. “I think it’s more of a stabilization than anything and more of what we’d call a normal market. Where you saw all these developments selling out in a day or a weekend, just due to unprecedented demand, it’s probably going to take weeks or months now instead of days, but that’s still considered a good market.
“I wouldn’t say the sky is falling, it’s just that what we saw over 2021 and even the first quarter of 2022 was pretty much unprecedented and I would go as far as to say was pretty much a local market. Borders were closed due to COVID, no one was coming or going, there was no immigration for two years so it was a local frenzy of local people buying and the interest rates were low, and it really honestly wasn’t expected.”
Simply put, because inflation drives costs up, Squires said, no matter what’s being bought or sold, “you can’t make it and sell for less than what it costs you to produce it – that’s not really a winning formula, right.
“So what will happen is the number of sales and the velocity will probably slow down significantly, but like I said we’re seeing it happen over weeks and months of sell-out now, which is still a good market. I’ve been in markets where it’s taken two or three years to sell out a project.”
Squires noted that, for the consumer, with the latest increase the average Vancouver-area borrower is going to need to shell out an extra $273 per month – which is roughly an extra $3,276 per year – on their mortgage.
NEXT WEEK: The final part of our series looks at creative ways being utilized as residents and businesses cope with the high cost of living.