These days, Quebecers are not getting any richer. In fact, if Statistics Canada’s inflation figures are any indication, they are getting poorer. Although inflation actually slowed in the first three months of 2008, Quebecers are finding that prices just keep going up. The culprit is an upward inflationary trend that began in fall 2006.

The first reason the cost of living is on the rise is that oil has never been so expensive. The price of crude continues to shatter records, doubling in price from last year to US$135 per barrel at the time of writing. One might well ask what it’s going to take to stop this upward spiral. And naturally, the slightest increase is immediately reflected in the price at the pump, which is now hovering at $1.50 per litre. Who would have thought this was possible twelve months ago?

A second reason is the price of grain, which has skyrocketed since early last year: the sudden resurging interest in biofuels, caused by soaring oil prices, has exerted strong pressure on many crops. As such, between March 2007 and 2008, the FAO cereals price index almost doubled, from 151 to 284. Around the world, this increase was reflected in the retail price of bread and pasta, but also milk and meat. Canadians also felt the pinch: According to StatsCan, bakery products rose by more than 10% between April 2007 and 2008, “the biggest increase since November 1981.”

There is a third reason Quebecers are feeling poorer and this time it has nothing to do with the global markets: the strength of the Canadian dollar. Its parity with the greenback is a problem for exporters, making their goods more expensive for our southern neighbours. However, our strong loonie should be making imports less expensive.

Yet, that’s not what’s happening. According to a Bank of Montreal study published last week, despite parity, Canadians are still paying 18% more for imports, be it cars, appliances, clothing or diapers. This means that perhaps some of the recently reported increase in retail sales stems from the fact that parity has not filtered down to the consumer level.

However, we can take comfort in one thing. Bank of Canada Governor Mark Carney is keeping an eye on inflation. He proved as much last week by holding the key rate at 3%, fooling analysts who were expecting more monetary easing. The central bank deemed that due to commodity prices and the 2008 and 2009 economic growth forecasts, inflationary risks were indeed present. So, although consumers feel they are getting poorer, they can rest a bit easier knowing the Bank of Canada will do its part to keep inflation in check. 

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