Good morning,

Rising prices have been a thorn in our sides going on two years now, with inflation hitting lofty heights not seen since the 1980s.

But nowhere in the country are Canadians feeling the impact of inflation as much as in Alberta, according to a new report by Alberta Central.

“We find that Albertans have seen the most significant underperformance in their purchasing power since 2019 of all Canadian provinces,” chief economist Charles St-Arnaud said in the report.

The study finds that Albertans’ purchasing power on average has declined by 3.6 per cent since 2019, while it has increased by 3.3 per cent in the rest of the country.

“This is an underperformance of 6.9 (percentage points) relative to the rest of Canada, which is quite considerable given the relatively brief period of about three years,” St. Arnaud said.

Are prices higher in Alberta?

Inflation has been on a roller-coaster over the past few years, the study said. Back in 2019, it sat comfortably around the Bank of Canada’s target of two per cent. It dropped to zero early in 2020 as the pandemic hit and energy prices plummeted. Then it started to rise when the economy reopened in early 2021 as commodity prices rebounded and supply chain disruptions led to shortages. It peaked at about eight per cent in the middle of 2022 when energy prices soared after Russia’s invasion of Ukraine.

The Bank of Canada then rapidly hiked interest rates, and the rate of inflation slowed. In March, it sat at 4.3 per cent.

The consumer price index has increased by a cumulative 13 per cent since the end of 2019, St-Arnaud said. But it actually rose the least, 11.4 per cent, in Alberta. (Prince Edward Island suffered the worst rise at 16.6 per cent.)

If not inflation, what?

St-Arnaud said the problem is that wages and income growth in Alberta have not kept up with the rest of Canada. Since 2019, nominal wages and income in Canada have risen by 16.5 per cent, while in Alberta they have increased by only 8.6 per cent.

Meanwhile, British Columbia, Quebec and Ontario have outperformed on wages and income over the past three years.

The first culprit that springs to mind is the 2020 oil slump, but St-Arnaud said the underperformance is broad-based across industries. His early analysis suggests other factors are at play.

First, strong migration to Alberta, both from within the country and from outside, has kept the supply of workers in the province higher than in other regions, reducing the pressure to raise wages. This is backed up by the comparatively lower job vacancy rate in the province.

Second is an adjustment after the energy boom-bust cycle. In the 2000s and early 2010s, high demand for labour drove wages in Alberta well above the national average. What is happening now is a return to normal with wages more in line with the rest of the country, the economist said.

In 2019, hourly wages and weekly earnings in Alberta were six to nine per cent higher than the rest of the country, with disposable income 20 per cent higher — a situation that became known as the “Alberta advantage.”

Even today as Albertans experience the biggest drop in purchasing power, they still earn more on average than households in the rest of the country.

But that is fading fast with hourly wages now on par with the rest of Canada and weekly earnings only three per cent higher.

“The underperformance means that the ‘Alberta Advantage’ is melting away rapidly, to a point where it has disappeared based on some measures,” St-Arnaud said.

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Canadians are starting to feel the pinch of interest rate hikes, retail sales data out Friday signalled. Sales fell 0.2 per cent in February and are estimated to have fallen 1.4 per cent in March — which would be the weakest reading since last July.

Sales were down in six of the 10 provinces, with the biggest losses in British Columbia, Alberta and Manitoba.

Randall Bartlett, Desjardins senior director of Canadian economics, said the numbers signal that this section of the economy will likely continue to move lower.

“That will be music to the ears of Bank of Canada decision makers, and help to keep them on the sidelines for the foreseeable future,” he wrote in a note.

What to watch this week
Real GDP on Friday will be the most watched data point this week. After the bigger than expected gain in January, gross domestic product is forecast to cool to 0.2 per cent, said Desjardins economists.

Today’s Data: New housing price index

Earnings: Canada’s biggest railways report their first-quarter results this week, starting with Canadian National Railway Co. after market close today. Canadian Pacific Kansas City Ltd. reports its earnings after the bell on Wednesday

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Credit cards, in-store financing plans and payday loans are often considered bad debt, while reasonable mortgages and home equity lines of credit are deemed good debt. But debt counsellor Sandra Fry says the key distinction between good and bad debt is in the outcome, not necessarily the product. She gives us nine tips to live a rich life without succumbing to a bad debt situation.

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Today’s Posthaste was written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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