Yukonomist: The ghost of inflation past

In the new year, it’s good to think about how prepared you are for a run up in prices

When the Yukon News reported that the City of Whitehorse was raising our property taxes by 2.3 per cent, I sighed and exclaimed that—once again—the city was raising taxes faster than inflation.

It turns out I was wrong. In an even more annoying turn of events, the city is actually raising property taxes by less than the rate of inflation. That’s because inflation has gone up.

The latest data from the Yukon Statistics Bureau shows inflation in Whitehorse was 2.5 per cent for the year ending September 2018 (comparable figures for the Yukon are unavailable). It had been comfortably under two per cent in each of the years from 2013 to 2017.

Goldbugs and monetarists have been warning about imminent inflation for years. They worry that the many years of low inflation we have enjoyed would be upended by the flood of money central banks unleashed as they used “quantitative easing” to revive the economy after the financial crisis.

Inflation can do a lot of economic damage. Those that remember the 1970s and 1980s will recall annual inflation rates of more than 10 per cent. It was a scary time to borrow money for a mortgage or to start a business.

When central banks finally moved decisively to bring inflation back down to earth, interest rates spiked to more than 20 per cent in Canada. Yukon old-timers will tell you about businesses in Whitehorse shutting down, people walking away from their houses, and classmates suddenly moving away.

So are we headed for a repeat of the devastating 1981-82 recession?

It’s far too early to say. The chart makes it look like inflation has been trending higher in late 2018. However, this could be a blip. Inflation in the year to August 2018 was even higher, at 3.9 per cent, before dipping to 2.5 per cent in September.

Nonetheless, as you make your budgetary resolutions for New Year’s, it’s good to think about how prepared you are for a run up in prices. Even if that run up is relatively minor in the annals of economic history, it can still hurt if you’re not ready.

One thing to know is that inflation hits different products in different ways. Food prices actually went down 1.7 per cent in the year to September. The categories “Health & Personal Care” and “Recreation, Education & Reading” both went up only slightly, less than one per cent.

On the other hand, shelter costs went up 3.8 per cent. This isn’t a surprise given our housing shortage, although you would be sheltered from this if you have paid off your house or have a long-term lease.

Transportation went up 6.7 per cent while booze and tobacco surged 5.9 per cent. Looking just at energy, it went up a stonking 15.3 per cent.

So your wallet will be feeling the pain if you just bought a poorly insulated house with a new mortgage, drive to work, smoke and drink.

On the other hand, you can laugh in the face of the Yukon Statistics Bureau if you don’t smoke or drink, like to read, and ride your snowbike to work from your fully paid-off and super-insulated tiny house.

Of course, just because prices went up last year doesn’t mean they’ll go up the same next year.

Energy in particular is volatile. You’ve got the carbon tax coming, but on the other hand that glut of Canadian oil and gas could lead to cheaper prices filling your truck or home oil tank.

You probably shouldn’t count on lower housing costs next year, unless you believe our various levels of government will come together to rapidly execute a high-impact action plan to make more land available and enable cheaper construction.

The uncertainty underlines how important it is to make a personal budget, and to have some cash in a rainy day fund just in case. A survey last year by the Canadian Payroll Association found that 47 per cent of respondents said “it would be difficult to meet their financial obligations if their paycheque was delayed by even a single week.”

This is not a phenomenon limited to low-income Canadians. You would probably be surprised at how many families of all income brackets have monthly expenses and debt payments that eat up all or more of that income. This can make dealing with an unexpected illness or transmission failure in the family minivan all the more difficult.

Despite how difficult it is with rising housing and energy costs, it is a hard fact of life that budgeting is an effective way to help you keep expenses under your income. That way you can put some money aside, or chip away at your debt.

The Financial Consumer Agency of Canada has a handy online budget tool if you want to get started.

In the meantime, there are some rising costs you know for sure. While property taxes aren’t going up faster than inflation, City of Whitehorse sewer and water rates will go up 2.76 per cent in 2019 and garbage fees 12.8 per cent.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.