Atlantic Institute for Policy Research Highlights
Economic policy commentary and research from the AIPR

As analysts speculate on the inevitability of another recession in the coming months, new research out of the University of New Brunswick shows that many Canadians still haven’t recovered from the last one.

A new study from the Atlantic Institute for Policy Research (AIPR) and the New Brunswick Institute for Data, Research, and Training (NB-IRDT), both located on UNB’s Fredericton campus, shows Canadian women, rural Canadians, and households with children have experienced a prolonged economic depression since 2008.

The study looked at the percentage of real income that households spend on food to determine whether the Consumer Price Index (CPI), Canada’s standard measure of affordability, accurately reflects real purchasing power of certain segments of society. The study examined data for 11 different population segments in each province.

“Since the 2008 recession, Canada’s CPI and real income – at least on paper – have looked fairly steady. We aren’t seeing anything in the aggregate price or income data to indicate Canadians have been having a harder time making ends meet. But that’s not what people on the street are saying,” says Dr. Herb Emery, the Vaughan Chair in Economics at UNB and the study’s co-author.

“We wanted to see if the CPI was telling the whole story on the cost of living,” says Dr. Emery. “If the CPI accurately reflects the cost of living, then the food share of household budgets should follow a steady and predictable relationship with income. But that is not what we found since 2008.”

In the years since the 2008 recession, the relationship between food share of budgets and household income has been very volatile, showing dramatic spikes in 2010-2011 and 2013-14.

“When we see increases in the food share of real income, we know people’s money isn’t stretching as far,” explains Dr. Emery.

The data shows that women and households with children are feeling the cost of living pinch more than others.

“Men and married couples with no children seem to have recovered their purchasing power since the last recession. But women and households with children are a different story. They have experienced a prolonged decline in the purchasing power of their income.”

The problem gets worse moving from west to east in Canada.

“Each province has different results, as you would expect. But generally, the decline in real income for certain population segments gets worse the further east you go,” says Dr. Emery.

Dr. Emery says several factors may have contributed to some population segments struggling more since the last recession.

“Access to credit has tightened considerably since the last recession. We suspect that prior to 2008, many Canadian households were using credit to buffer against price shocks in certain goods and services. People don’t have the same access to credit anymore, or at least they aren’t using it as much.

“The spike in oil and gas prices in 2009-10 corresponds to the first major spike in food share of income after 2008,” says Dr. Emery. “For many households, particularly in rural Canada, demand for gasoline and heating fuel is somewhat inelastic. They can’t switch to cheaper transportation options because public transport doesn’t exist and there aren’t many alternatives for heating your home during a cold Canadian winter.

“Based on these findings, policy-makers need to be concerned about the cost of essential goods and services because we know some households are already struggling with affordability,” says Dr. Emery. “The carbon tax, for example, will likely hurt women, households with children, and rural Canadians a lot more than other segments of the population, even with the federal rebate cheques.”