Not only does the inflation tax make consumers pay more for exactly the same goods and services. It silently raises taxes on their now lower real incomes, writes Jack Mintz in the Financial Post. Below is an excerpt of the article, which can be read in its entirety here.
By Jack Mintz, November 1, 2021
With year-on-year inflation of 5.4 percent in the U.S. in September and 4.4 percent in Canada, we hear about an explosion of the past: the “inflation tax,” which allows governments to extract their pounds of meat in the hidden. Instead of meeting the political heat of raising taxes to pay for new spending, deficit financing is pumping up prices, ultimately reducing the purchasing power of household incomes.
And it’s not a small treasure. In Canada, average weekly earnings including overtime were $ 1,130 in January. If the consumer price index rises by five percent this year, the same goods and services that wages bought last year will cost $ 55 more. Multiply that $ 55 by week by 52 weeks, and the total for the year is $ 2,860.
And that’s only for a year. If prices rise equally by next year, the tax will be another five per cent. Canadians’ real income can fall behind fairly quickly.
Of course, not everyone pays the inflation tax. Anyone whose income is indexed to inflation – retired MPs and government officials, for example – gets their loss of purchasing power compensated (by their income, that is, but not necessarily on their assets).
After a year of frozen wages for many workers in 2020, this year’s inflation is a clear skirt. Since January, the average weekly wage has barely shifted. With seasonally adjusted 3.4 percent inflation in the first nine months of the year, the average Canadian is fast falling behind. That, of course, can change. With the shortage of labor currently being experienced in many industries, workers are being forced to seek higher wages – though it may again be built into inflation expectations.
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