The news currently is full of stories about the rising cost of living whether it is grocery prices, rents, housing or energy. The release of April’s CPI inflation rate shows it nudging upwards once again to 4.4 percent raising the spectre of further interest rate increases down the road. Apparently one fifth of Canadians feel they are completely out of money as inflation “bites.” And along with the usual afflictions on budgets, inflation is apparently also taking a toll on entrepreneurial mental health. Needless to say, those of us of a certain vintage who remember the double digit inflation and interest rates of the early 1980s sometimes wonder if part of what is going on here needs to be interpreted within the context of life experience. That is, if you are in your 30s and 40s, what is currently underway is an extreme price shock whereas if you are in your 50s and 60s the current inflationary and cost of living surge is relatively modest.
What does the evidence say? Well, the accompanying figure plots a number of times series starting from 1990 using Ontario data. For all of them, it sets 1990 as the base year and equal to 100 thus allowing us to see how what the increases have been for all the series in a standardized way. The data for rents for Toronto and Ontario is from CMHC, the CPI and nominal GDP per capita from Statistics Canada and the Ontario minimum wage you can get online from an assortment of sources. As the figure shows, the cost of living in Ontario has gone up since 1990.
For example, since 1990 the average rent for a Toronto two-bedroom apartment has gone from $689 to $1811 per month -a 163 percent increase. Needless to say, being an average it masks the fact that at the margin, someone looking for a two bedroom in Toronto right now will likely face rents of over 3,000 a month if not more. For Ontario as a whole, average rents have gone up similarly from $576 to $1511. At the same time, the going market rate for a new rental ranges widely across Ontario also with two-bedrooms going for $3,290 in Toronto to $2,262 in Hamilton to $2,050 in Kingston - all above the “average” for all rented units.
With respect to the average rents, the increases in the accompanying figure are spread out over thirty years and while higher than the increase in the CPI, they matches pretty closely to the rise in nominal per capita GDP which has risen 167 percent. Of course, one often sees the argument that the working poor cannot keep up but the Ontario minimum wage from 1990 to 2023 has gone up 206 percent – faster than average rents (162 percent), inflation (103 percent) or per capita GDP (167 percent).
So, what is the problem? I think the problem is the rapidity of the recent increases relative to the resources available to pay. From 1990 to 2010, the average rent for a two-bedroom in Toronto rose 63 percent or an average of 3 percent annually. Over the same period, average rents in Ontario rose 61 percent (or just under 3 percent annually) and the CPI rose 48 percent (about 2.3 percent annually). Meanwhile, hourly minimum wages rose almost 90 percent (4.5 percent annually) (on average) while per capita GDP rose almost 80 percent (4 percent annually). This suggests that resources were able to keep up with rising prices.
For the 2010 to 2022 period, the average rent for a Toronto two bedroom rose 58 percent (about 4.9 percent annual average) with the Ontario average also at 4.9 percent annually. As well, the CPI rose 31 percent (at 2.6 percent annually on average). However, much of the "pulling up" of the average has occurred since 2019 – the pandemic era. Meanwhile, since 2010, the minimum wage has grown 51 percent (at 4.3 percent annually) while nominal per capita GDP rose 45 percent (annual growth at 3.8 percent). All of this is notwithstanding the reality that if you have been renting the same place for the last 15 years and are rent controlled, your experience is different from someone who needs to find a new rental right now.
Ultimately, the period from 1990 to 2010 in Ontario was all things given a relatively more prosperous period than 2010 to 2023. What seems to have happened is that in general the public over the period 1990 to 2010 experienced low interest rates, relatively low inflation and fairly robust economic growth which translated into a relatively easier time of making ends meet than the period since 2010. The period since 2010 started with low interest rates but are now seeing higher interest rates, higher inflation and lower GDP growth. For anyone born after 1980, the current experience is undiscovered country. Needless to say, there are a lot of unhappy campers. So, the crux of the matter seems to be that there has been a surge in cost but not accompanied by the economic productivity that would afford a greater ability to pay. For those at the lower end of the income distribution, the average annual increases in the minimum wage have on average been higher than the increase in nominal per capita GDP but that is little comfort if you need to find a new place to live at current market rents.