Tracking the Purchasing Power of the Canadian Dollar
The purchasing power of a currency is the amount of goods and services that can be bought with one unit of the currency.
For example, one Loonie could buy 2 movie tickets in 1915. Today, it’s the cost of half a litre of gas. In other words, the purchasing power of the Canadian dollar —its value in terms of what it can buy—has decreased massively over the past century.
Key Statistics
In 1915, $1 could buy 2 movie tickets. Today, it’s half a litre of gas.
From 2020 to 2023, the Canadian money supply grew by $600 billion, more than 25% of all the dollars ever printed.
Money supply (M2) shows no sign of slowing down.
Even those in the top 10% of Canadian income do NOT qualify for a mortgage for the average house.
Tracking Purchasing Power [CANADA]
| Year | Purchasing Power of $1 | What a Dollar Buys |
|---|---|---|
| 1915 | $24.66 | 2 movie tickets |
| 1929 | $16.44 | 5 loafs of bread |
| 1935 | $20.90 | 10 bottles of beer |
| 1945 | $16.55 | 2 packs of bacon |
| 1953 | $10.77 | 1 kg of ground beef |
| 1964 | $9.20 | 3 litres of milk |
| 1973 | $6.42 | 17 eggs |
| 1983 | $2.60 | 3 rolls of toilet paper |
| 1995 | $1.73 | 3 lemons |
| 2008 | $1.33 | 1 cup of McDonalds coffee |
| 2022 | $1.00 | Half a litre of gas |
In recent years, the M2 money supply in Canada has seen a significant expansion, a trend that has been accelerating even more rapidly in response to economic interventions due to the COVID-19 pandemic.
M2, which includes cash, checking deposits, savings deposits, and money market securities, represents the broadest category of money supply that’s used by economists to quantify the amount of money in circulation.
The rapid increase in this supply has been driven in large part by the Bank of Canada’s policy responses, which have included lowering interest rates and purchasing assets to inject more money into the economy.
The effects of this rapidly expanding M2 money supply have started to become noticeable, particularly in the context of the purchasing power of the Canadian dollar.
Pain being felt in quantity and quality of goods
In economics, purchasing power refers to the quantity and quality of goods and services that can be bought with a certain amount of money.
As the money supply increases, if it outpaces economic growth, there can be a risk of inflation. In other words, more money chasing the same amount of goods and services can lead to price increases.
Indeed, as M2 has risen, there has been a decline in the purchasing power of the Canadian dollar. This means that each dollar can now buy less than it could previously, leading to an increase in the cost of living for the average Canadian.
This impact is most visibly felt in sectors like housing and groceries, where prices have been escalating at a rate that outpaces wage growth, making it more challenging for many Canadians to meet their basic needs.
Lower income families hurting the most
The falling purchasing power is particularly burdensome for those on fixed or lower incomes, who find their money stretching less and less with each passing year.
Furthermore, savers also find themselves at a disadvantage as the real value of their savings diminishes in the face of rising inflation.
These shifts underline the need for a careful balancing act from policymakers.
While measures taken to increase the money supply can be necessary to stimulate the economy during periods of crisis, these actions can also lead to unintended consequences, such as a decrease in purchasing power and potential inflation.
Therefore, as we navigate the path to economic recovery, it will be essential for policymakers to closely monitor these effects and consider strategies to mitigate the adverse impacts on Canadians.
