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Yukonomist: Price shock 2022 and Yukon families

Talk about inflation has moved from university zoominars to Yukon kitchen tables.

Talk about inflation has moved from university zoominars to Yukon kitchen tables.

Dry economic statistics get real, fast, when you translate them into bills in real life.

Thanks to geopolitical mayhem and a rapid post-pandemic recovery running into supply bottlenecks, Yukon wallets are under attack from multiple directions. Energy, food and housing costs are rising fast.

In February 2021, the average litre of gas in Whitehorse cost $1.29 according to the Yukon Bureau of Statistics. Recently we’ve seen prices around $1.80 per litre or even higher.

If you drive a standard minivan the average distance a Canadian car travels per year, which is 15,200 kilometres, then that jump in gas prices will cost you about $800 a year. If you are a two-car family, you can double that. If your second car is actually a 4x4 pickup with aggressive tires, take some more cash out of your wallet and set it on fire.

Suppose a typical Yukon family burns 2,000 litres of home heating oil per winter. In February 2021, a litre of this cost $1.25 in Whitehorse. In February of this year, the Bureau says it cost $1.53 per litre. Suppose the recent Ukraine-Russia crisis has put that up 20 cents a litre since February, and the difference between now and February 2021 works out to $950 for a winter’s worth of heat.

So much for the appetites of your car and your furnace. What about the stuff your family eats?

Statistics Canada says the average household in Canada spends $7,536 per year on food purchased from stores. The agency’s boffins report that food prices rose 7.4 percent in the year ending this February. That works out to an extra $550 per year.

We haven’t even got to the big one yet: housing. On April 12, the Bank of Canada raised its policy rate by half a percent. Market watchers expect more hikes as the Bank takes decisive action against inflation. We don’t know how far the Bank will have to go, but Yukon budgets will feel the pressure as the Bank of Canada’s rates feed into the mortgage rates of the Main Street banks.

While many people have locked in their mortgage rates, a record number of Canadians have been choosing floating rates in recent years. They will be the first to feel the impact of rising rates.

For example, if you have a $400,000 mortgage then an increase in your mortgage rate of one percentage point works out to an additional monthly bill of around $200. That’s $2,400 per year in extra payments to the bank.

If the Bank of Canada ends up having to raise rates dramatically, and mortgage rates go up two percentage points, then that works out to almost $5,000 per year for our household with a $400,000 mortgage.

Let’s add these up: two cars, 2,000 litres of home heating oil, an average grocery bill and a $400,000 mortgage facing a one-percent rate hike.

It works out to $5,500 per year.

And that doesn’t count inflation in other products. Statistics Canada reported rises in all its major product categories, although clothing and footwear rose less than most.

The news is not all bad for your wallet. The Yukon government recently announced a special $150 payment to offset rising electricity bills, and the prices of telephone services actually went down over the last year.

With inflation hitting levels not seen since 1991, many Yukoners have no experience of dealing with such an inflationary shock.

It will be especially painful for those on fixed incomes, and people who have not yet locked in their mortgage rate.

The big question is how much longer these inflationary pressures will last, and how households will react. A major belt tightening may ripple through the Yukon economy if people spend less on travel, entertainment and discretionary goods. This would not be good news for Yukon hospitality businesses already hurting from COVID-19 closures and staff shortages.

It may also affect the local housing market. HIgher interest rates will cut into the purchasing power of buyers, and some potential purchasers may decide to wait and see how the economic situation unfolds.

In the meantime, it is time to dust off the family budget and figure out a plan before you spend too many months in the red. And if you’re too young to remember one of our previous inflationary episodes, you might even want to call the grandparents and ask what they did in the 1970s when gasoline hit the previously unthinkable price of a dollar a gallon.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He is a Ma Murray award-winner for best columnist.