While lower-income households generally bear the brunt of higher inflation, the latest energy shock is hitting Canada’s wealthier households too, reports Desjardins Group.
In a report published Tuesday, Desjardins deputy chief economist Randall Bartlett examines the impact of the global energy shock on Canadian households, which were already grappling with the impact of higher U.S. tariffs.
Higher global oil prices translate into rising fuel and fertilizer costs, which consumers feel most directly in the form of higher food and gas prices. Additionally, the loonie has weakened against the U.S. dollar, raising the cost of imports generally — and there is the risk that inflationary pressures broaden.
“Over time, more expensive fuel and supply chain pressures due to conflict-disrupted shipping routes in the Middle East could put upward pressure on the price of other goods, as they did after the pandemic,” the report said.
“Add to this the sensitivity of consumer inflation expectations following a bout of high inflation, and there is a risk that the increased cost of goods could ultimately push services prices higher as well.”
In general, lower-income households feel the impact of higher inflation more than higher-income households, the report noted. However, for higher-income households, the immediate effects of spiking oil prices are evident too.
For instance, transportation accounts for a greater share of overall spending in higher-income families, and these households also spend more on hospitality, food services and financial services, the report noted.
“So, given their greater propensity to travel and eat at restaurants, that’s a channel by which [higher earners] may also feel the impact of rising costs more quickly,” Desjardins said.
That said, higher-income households “are also the best positioned to absorb the shock,” Bartlett noted.
In the face of these kinds of pressures, governments have a couple of basic options for providing relief — taking measures to lower costs or to boost incomes. But these policies have their own risks too.
“… policy options for offsetting the cost‐of‐living impact of higher energy prices will need to balance securing broad support with assisting the Canadians in greatest need, all while keeping an eye on fiscal sustainability,” the report said.