Canadian households spent an average of $76,750 on goods and services in 2023, a substantial increase of 14.3 per cent over 2021. This boost in spending was largely driven by the surge in inflation (up 10.9 per cent) over this period which took the wind out of the sails of the post-pandemic recovery and hit low income households hard.
The federal government was slow to respond, falling back on a series of temporary measures that have done little to ease immediate financial pressures and reign in the cost of housing. Affordability was at the top of the list of voters’ concerns in Election 2025. Canadians are still waiting for a comprehensive plan that offsets the cost of essential goods and services, now consuming an ever-larger share of family income.
Canada’s post-pandemic inflation shock
In 2022, close to half (44 per cent) of Canadians reported being “very concerned” about their ability to meet day-to-day expenses—as did nearly two thirds (63 per cent) of those living in the lowest income households.
While inflation has eased since 2022 and is now trending around two per cent annually, the actual cost of essentials hasn’t gone down. The overall price of the typical basket of goods and services for the average Canadian household rose by a hefty 17.4 per cent between 2019 and 2024. The increase was even higher for food (23.3 per cent), shelter (24.0 per cent) and transportation (21.6 per cent)—notably for gasoline (55.6 per cent).
The cost of food and shelter is still running high. In 2024, the average price of groceries was 10.4 per cent higher than it was in 2022, and the cost of shelter was 11.6 per cent higher. Lower interest rates helped to modestly reduce costs for those initiating or renewing mortgages, but the pressures on rent prices have accelerated as the population has grown. Today, shelter costs are 15.4 per cent higher than they were in the spring of 2022 compared to an increase of 9.2 per cent in the total Consumer Price Index (CPI).
The high cost of living and heightened economic uncertainty remain top of mind for millions of Canadians. In October 2024, nearly three in 10 (28.8 per cent) people aged 15 and older were living in a household that had found it difficult or very difficult to meet its financial needs. This represents a drop from October 2022 (35.5 per cent) but remains much higher than the figure from October 2020 (20.4 per cent). The 2024 rate was especially high among renters (39.2 per cent) and recent immigrants (41.2 per cent).
Wage gains lag inflation among low income households
Low income households have had nowhere to turn. Pandemic era income supports provided a cushion in 2020 and through early 2021, but they were quickly wound down just as inflation was starting to spike. Modest wage growth post pandemic hasn’t been enough to offset rising costs for the basics and interest payments on debt—and wage gains have been trending down too this past year. In 2024, the annual wage increase for retail workers making an average of $745 per week was zero.
Higher income households, on the other hand, had much more room to manoeuvre. Not only did the top 20 per cent of households record the largest wage gains between 2019 and 2023, they also benefited from higher investment returns in the market and the run-up in housing prices, widening the gap in income and wealth with poor households. These households were easily able to accommodate rising prices.
Increased food, shelter and energy costs is an especially devastating reality for low income households because these households spend more of their income on essentials, leaving little to spend on healthy food, suitable housing, needed medications or education—nevermind savings to put aside for rainy days.
Poor and modest income families spend basically every dollar they have on their immediate needs—94.6 per cent vs 55.7 per cent among those in the top 20 per cent.
High rates of inflation have only made this situation worse. For example, in 2013, the average household in the bottom income quintile spent six of every 10 dollars (59.8 per cent) on food (13.7 per cent), shelter (30.4 per cent) and transportation (15.8 per cent). By 2023, that same household was spending 62.6 per cent of total expenditures on essentials.
Among low-income renters in the private market, the burden is especially severe. In 2022, according to OECD data, 34.8 per cent of them spent more than 40 per cent of their income on shelter, while 31.0 per cent of low-income mortgage holders were in the same boat.
By contract, households in the top quintile spend less than four dollars of every 10 on these basics, a figure that fell by three percentage points between 2013 and 2023—from 37.9 per cent to 34.9 per cent. Indeed, the gap is likely larger if you take into consideration that higher income families tend to buy better quality services than those in lower income groups.
Haphazard approach predictably delivers poor results
The post-pandemic “affordability” crisis reconfirmed that inflation has massive redistributive effects. In this instance, as the vast majority of households confronted surging living costs, those at the top of the income ladder were able to leverage the opportunity to amass greater wealth.
The affordability crisis also spurred a backlash against the federal government, which was slow to respond to people’s concerns. It has yet to meaningfully respond.
Governments around the world introduced a variety of measures to help shield families from the effects of the inflation shock. For its part, the Canadian government leaned heavily on temporary measures, doubling the Goods and Services Tax (GST) Credit for a six month period in late 2022, introducing a “Grocery Rebate” in summer 2023 (doubling the GST Credit once more for the fiscal quarter), and providing a one-time $500 top-up to the Canada Housing Benefit for renters.
The federal government rolled out another one-off “tax holiday” last Christmas that temporarily removed the GST/HST from selected goods and services like groceries, snacks, and kids clothing. The planned $250 Working Canadian Rebate for Canadians earning less than $150,000 was shelved when then Finance Minister Chrystia Freeland resigned from Cabinet, calling on Justin Trudeau to “eschew costly political gimmicks, which we can ill afford.”
Another costly gimmick we can ill afford: the new Liberal government’s plan to drop the personal income tax rate of the lowest federal tax bracket from 15 per cent to 14 per cent. Millions will see some benefit but not the poor. Indeed, the richest 40 per cent of Canadians will glean three-quarters of the promised tax savings—all at a total cost of $5.4 billion annually in foregone revenues. The Conservative tax proposal during the election campaign was even worse.
Affordability rests on a strong social safety net
An effective response to the cost-of-living crisis demands a comprehensive approach—and not a series of one-off measures. It also recognizes the disproportionate burden that low income households bear, including measures that are directly aimed at curbing inflation in those areas that comprise the greatest share of their household expenditures.
The new Canadian Dental Plan and revamped Canada’s Housing Plan are important building blocks of an approach that can make a difference, despite the shortcomings of each. The Canada-wide Early Learning and Child Care program fits in this category too. Ten-dollar-a day child care has had a hugely positive impact on family budgets for the lucky parents who have secured a spot in the system. In the aggregate, the cost of child care services declined by 28 per cent between 2021 and 2024.
Investments in strong public infrastructure such as health care, education and housing are the foundation of a successful affordability plan that fosters communities where all can thrive. According to the OECD, those in the lowest income quintile would have to spend three-quarters of their after-tax income on essential services if they had to purchase them directly.
The challenge, as poverty is rising, is to develop a comprehensive affordability strategy that bolsters public infrastructure and provides sustained financial support for low income households shouldering the greatest costs.
A real affordability plan would, for instance, significantly expand the stock of community and nonprofit housing, directing more money to the Rapid Housing Stream of the Affordable Housing Fund, the new Canada Rental Protection Fund, and the Urban, Rural, and Northern Indigenous housing strategy. A real plan would address the financialization of housing that continues to fuel the affordability crisis and bring in a robust renters’ bill of rights and national rent controls.
A real plan would introduce measures to contain the power of oligopolies that control the production and distribution of food and tackle excess profits in Canada’s food industry. We could look at the introduction of strategic price controls on a basket of essential goods and strengthen existing pricing gouging laws. The voluntary agreement among large grocery stores to stabilize food prices, brokered by the federal government in fall 2023, has not arrested the rise in food prices. The situation is particularly pressing given the heightened risk of profiteering that now exists in the context of the trade war.
And a real affordability plan would overhaul Canada’s income security system including reforming the Employment Insurance (EI) system and closing the gulf that exists between the cost of living and benefit rates of programs such as social assistance. One place for the federal government to start is raising the rate of the new Canada Disability Benefit, due to start in July. Its current design ensures that it will help far too few people in need because of unnecessarily restrictive eligibility criteria and the wildly insufficient size of the benefit.
“Bringing down costs for Canadians and helping them to get ahead” was number three on Mr. Carney’s list of priorities for his new government. But it is not clear how the new government plans to move forward. The budget is slated for the fall. The time-limited tweaks to EI introduced in March don’t bode well. In the meantime, low and modest income households will continue to struggle with the high cost of living.
