Ask ordinary Canadians how their finances are holding up, and a familiar frustration surfaces: They feel like their incomes aren’t keeping pace with the cost of living.
On the surface, it doesn’t add up. Average hourly wages and annual income have both grown faster than headline inflation, as measured by the Consumer Price Index (CPI) over the past two decades.
So why does a growing paycheque still leave people feeling like they are falling behind? The answer lies in what we mean by purchasing power.
Purchasing power isn’t simply about how many groceries you can buy with your paycheque. It’s also about how much wealth a person can accumulate to buffer against future uncertainty and to preserve the freedom to make consequential choices, such as launching a business or having kids.
That sense of security is deeply comparative: People measure themselves against their peers, and against what their parents managed to build at the same stage of life.
The numbers tell a striking story: Over the past 20 years, average hourly wages grew at 3.2 per cent annually, while average individual incomes grew at 3.1 per cent. Both outpaced CPI inflation by about one percentage point.
On paper, that’s a real gain. In practice, rising asset prices have outrun those gains entirely. Canadian housing and equities have grown far faster, pulling wealth toward those who already own them and leaving non-owners further behind each year.
The core problem is that CPI was never designed to capture this dynamic. It tracks a basket of consumer goods meant to reflect household spending, while assets are largely absent.
Home prices appear only indirectly through mortgage interest costs, which itself understates reality: Just under one-half of Canadian homeowners carry no mortgage, and most others bought long ago at far lower prices.
Rising asset prices matter most for younger Canadians who have not yet entered the asset economy. Those people who already hold property or investments have seen their net worth lifted by rising markets even during periods of modest wage growth.
Those who don’t are trying to buy into those same markets at prices their parents never faced, with wages that technically beat inflation but fall short of what ownership now demands.
Beyond its asset blind spot, CPI has a second weakness: It represents the average Canadian household, not the reality of any particular one. Surging grocery prices hit a young family with children far harder than a retired couple. Rising rents, similarly, weigh more heavily on younger Canadians, who are far more likely to be renting.
The puzzle of why so many Canadians feel squeezed despite positive wage data isn’t really a puzzle. It’s a measurement problem.
When we measure living standards solely through CPI, we overlook the asset squeeze and the fact that inflation affects households differently, depending on their spending patterns and housing status.
Hanif Bayat, PhD, is the CEO and founder of WOWA.ca, a Canadian personal finance platform.
