Nova Scotia inflation leads country

Life got more expensive in Nova Scotia in August at a faster rate than it did anywhere else in Canada.

Statistics Canada released numbers Tuesday showing that inflation continued ticking back up nationwide at four per cent in August (up from 3.3 per cent in July).

Nova Scotia led the provinces with an annualized rate of 4.7 per cent.

The primary drivers in this province were rising costs for energy and shelter.

Nova Scotia outpaced the rest of the country with average rental costs going up 9.5 per cent year over year.

The rising energy costs can at least be partly attributed to the carbon tax, which in July added 14 cents per litre to the price of gas at the pump and to the cost of any form of energy obtained by burning fossil fuels. While the Liberal government has argued that the tax is revenue neutral and argued most Nova Scotians will get back in quarterly rebates more than they pay, the Parliamentary Budget Officer issued a report in March finding that only the lowest income bracket will see a positive financial benefit while the rest of us will take a hit from the tax.

Analysts widely expect inflation to remain well above the Bank of Canada’s two per cent target rate for some time.

Meanwhile, the higher interest rates that have wrestled inflation down from highs around nine per cent are taking a toll on the economy.

Recent data shows the economy shrank in the second quarter and the jobless rate ticked up slightly.

Debt doubling

“We’ll probably have a very mild recession in 2023,” said Greg Tkacz, an economics professor at St. Francis Xavier University who used to work for the Bank of Canada.

The “mild” part of the economy shrinking would come from us heading into a recession with a strong job market.

Tkacz sees the seesawing inflation rates as being partly the consequences of the economy rebounding from Covid-19 lockdowns and government stimulus efforts.

To fund its massive infusions of cash into the economy via programs like the Canadian Emergency Response Benefit (CERB), the government issued debt in the form of bonds and the Bank of Canada created currency to buy them.

While this helped keep money in Canadians’ pockets through the lockdowns, it will have to be paid back or at least serviced.

The national debt has nearly doubled since before the pandemic to $1.2 trillion.

It’s still going up as the federal government continues to run deficits.

Debt and housing

While interest rates had been slashed to historic lows when the majority of that debt was issued, the Bank of Canada has been raising them to bring down the inflation that followed the massive cash injections into the economy.

As those bonds come due over the coming years, the cost of paying the interest on it will go up for the federal government, just like it has been for homeowners when their mortgages come up for renewal.

“If government can’t reduce the debt or the deficit, they look at their other lever,” said Tkacz.

“Can we grow the economy sufficiently to decrease the debt to GDP ratio and increase our ability to pay? The government appears to be banking on growth through immigration. (Increasing) Canada’s population increases the number of people working, which increases the government’s tax revenue. So now we’re seeing explosive growth in Canada’s population which has basically been unseen for 70 years.”

In the long term, this will also help us offset the consequences of a low birth rate and an aging population – young immigrants will help pay the taxes that support elderly Canadians.

A short-term consequence of this massive new immigration, however, is an exacerbated housing shortage.

“Canada was already in housing crunch last year, but now you add 1.2 million more people,” said Tkacz.

“The country is not used to constructing that many housing units.”