Haligonians continue to feel the impact of rising prices in housing, food and gas. The impact of inflation can be felt most prominently with the increased house prices, leaving many struggling to pay rent and find affordable homes. 

Last year, Halifax had the highest growth in consumer prices (inflation) across benchmark cities, at 3.7%.

The many contributing factors affecting inflation in the HRM are low-interest rates, supply constraints, urbanization, increased population, and change in consumption habits.

James McNeil is an assistant professor of economics at Dalhousie University. His research focuses on monetary policy and interest rates, which examine the effects of raised interest bank rates on economic conditions. 

McNeil discusses inflation and how it is affecting the Maritime region. He said that as the population in Halifax is estimated to increase in the coming years, there is potential for growth in the future.

“Historically, the Maritime regions have typically had smaller incomes or lower incomes compared to the rest of the country. But it's also a growing community; the population of Halifax has increased a lot in the last year or two, and it's on track to increase a lot in the coming years.”

Housing

McNeil moved to Halifax two years ago and said that since then, house prices have essentially doubled. 

“With a lot of people with relatively high incomes all of a sudden being able to work from home, the Maritimes looked like an attractive location. Due to that increase in demand coming from other areas of the country, that led to higher prices, and was certainly a contributing factor.”

Another contributing factor to the increase in housing prices was that interest rates were quite low.

During the pandemic, people living in the Halifax Regional Municipality (HRM) were able to save a lot on services they would usually be spending on, such as getting haircuts or massages. As their savings went up, that allowed some to afford a house that cost a little more.

Other factors contributing to increased prices are supply constraints, along with urbanization and increased population. 

“With urbanization and more people moving to the same place, you can expect house prices to go up. That's one reason why we're seeing so many condo developments, particularly on the north end of Halifax. If you can't build out you build up."

McNeil said it was tough to predict whether the prices will stop increasing in the next few years. However, Halifax’s market is seeing some signs of slowing down, and as interest rates start to rise again, this might lead to lower house prices in the future.

Food

Canada's Food Price Report 2022 forecasts an overall food price increase of five to seven per cent for the coming year, the highest increase in food prices in 12 years. 

One of the contributing factors to the increased food prices was the COVID-19 pandemic, which led to global supply and food shortages, said McNeil.

Other contributing factors to recent food shortages were natural developments, such as floods and droughts. The war in Ukraine even plays a role, since both Ukraine and Russia are big exporters of wheat. The exporting business had to be halted as the war continues to elevate the food crisis. 

A good is rendered scarce when there is a lot of demand and very little supply.

“Economists tend to frame things in terms of supply on the one hand and demand on the other. I don't think that's necessarily an issue. Canada is still a high-income country. So that's not going to be a concern for us, although it could lead to higher prices. It's certainly more of a concern in developing countries.”

Primarily driving the higher food prices are the price of fresh produce and meats which have significantly increased over the past year alone. 

This year’s Canada’s Food Price report predicts that a family of four will pay up to $14,767.36 for food, an increase of up to $966.08 from the total annual cost in 2021. 

Gas

The factors leading to the constant fluctuation in gas prices across Nova Scotia would be that it is heavily tied to the price of oil which changes depending on supply and demand. 

“There tends to be potentially unpredictable changes to demand and supply and which can lead to bigger variability changes in prices.”

Shared and public transportation may become more appealing and serve as a cost-effective alternative as gas prices increase.

With climate change being an issue, McNeil said this could be good for our environment in the long run, although it may be uncomfortable for people to make necessary short-term adjustments.

“Think of higher prices as kind of working in the same way as a carbon tax: it's supposed to change your behaviour. So, if gas becomes more expensive and you drive your car less - and bike, walk, or take the bus to work - that's potentially a good long-term outcome.”

Inflation is also affected by foreign trade, since many goods that Nova Scotians consume are foreign goods.

“For example, if you buy a TV, I can almost guarantee you that it wasn't made in Canada. It was probably made from components from all over the world, assembled in China, and then shipped over here.”

Increasing the minimum wage

During the COVID-19 crisis, people changed how they spend their money and stopped consuming many services. Now that restrictions have been lifted and with their savings increasing, their consumption habits have increased in kind, whether from receiving services or purchasing more goods.

The change in consumption habits led to higher inflation, since people were buying and spending at a time when essentially everyone else was too. This led to higher prices for televisions and increased inflation for physical goods that were noticeable during the pandemic.

A recent study by two of the world's most renowned minimum-wage experts, University of California Professor David Neumark and U.S. Federal Reserve Board economist Dr. William Wascher, comprehensively reviewed all of the academic studies of minimum wages over the past 15 years.

Minimum wage advocates argue that increases are needed to reduce poverty for the working poor and that it can be done without negatively affecting employment; however, McNeil said there are different theories on this topic.

“Some classical economic models say that an increase in the minimum wage is sometimes bad for workers. It's good for workers certainly who get to keep their jobs, because they earn more money, but its typical model would predict that you're going to have fewer workers overall.”

He also added that in today's economy, there are more job opportunities than there are people searching for work, which can ultimately lead to increased wages.

In the current economy, raising the minimum wage wouldn’t have a big effect, since most people looking to hire are finding out they need to increase their wages to find someone who’ll agree to do the job, said McNeil. 

McNeil said the Bank of Canada is scheduled to meet soon, and the people of Halifax can expect increased interest rates, which can lead to lower inflation of products. 

“The economy tends to get worse when interest rates are higher. So, you can expect, for example, potentially a cooling off in the housing sector, but also potentially, broader economic effects from labour markets as well.”

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