Sunday, October 26, 2008
Part 1 - The Dollar As A Dollar
With this paper I am presenting evidence about the Canadian Economy currently not accounted for in the Statistics Canada Figures concerning the Consumer Price Index, Low Income Cut Off and will be further exploring the effects of this on the average sectors of consumers, and the market economy that depends on them. By reversing the progress of the inflation back to the Federally established 1992 "100%" dollar, This paper will also assume that the prices of 1992 are frozen with this dollar point: and as such by factoring average salary increases, average Inflation (CPI) information with the 2006 figures available, then reverting the 2006 sum back to 1992 levels, it should be clear how much the dollar has actually devalued in real spending power within our present economic situation.
I will also be factoring this sum straight back into the economy, as though income had to go through a cash register in 1992, something we still all do every day. This is a full measure, it takes no footnotes and does not try to account for family situations or households. This factoring is per individual, and discounts dependents only as having no income whatsoever. This paper concentrates on average consumers and their average purchasing power.
The Problems, Involved
Understanding Inflation-The Dollar as "One Dollar".
(Wiktonary) Inflation = Defined as a general increase in the cost of living or A devaluation of money.
Inflation is generally set against a "basket" of items, think of it as a grocery cart for the purpose here. The average increase in the cost of your basket on a year to year basis is considered to be Inflation, known as the CPI (Consumer Price Index). Inflation, for the purpose of measure, is set against a standard year chosen to be "100%" you should think of as 0. In Canadian Federal policy this 0 year is 1992. For the sake of this paper, the 1992 dollar is the 0 dollar versus the "100%" CPI prices, without the effects of current inflation rates, the Dollar is "One Dollar" in 1992.
In 2006 the CPI was at 129.9%.
$100 spent (1992) = $129.90 spent (2006).
NOTE; this CPI base year has been changed to 2002 for new studies as the 0 year. There remains enough record of the original 0 year 1992 to 2006, for me to continue. There also is information available to allow me to continue on until 2008.
Why does Normal Inflation Happen?
Base production costs, driven up by rises in commodities (Yes, and Oil is predictably at the forefront). What becomes consumer items goes through a series of stops on it's way to the shop; worker wages, transport and storage, packaging, in some cases advertising. In general, the inflation rate is the offset of this increase in production cost passed on through the prices of items sent into our consumer market for purchase. We pay more because it costs more for producers to produce goods.
It is to be remembered also that there are people out there living on benefits who have not seen a discernable increase to those benefits through this time, indeed they have seen losses, and for the purposes these people on fixed incomes will be the first sector I examen.
A Quebec last resort social benefit cheque (a.k.a.Welfare) at $600/month (in 2006 dollars) gives you only $420.60/month in 1992 dollars (the formula; 1992 Dollars = (2006) $600 minus (2006)29.9% CPI = $420.60 remaining in purchasing power, vs. 1992 prices). This is a loss of 7%.against the 0 year figure
How does that work? I have taken the 2006 figure ($600) and subtracted the 2006 CPI (29.9%, or $179.40), and by doing this I have returned the sum of $420.60 as a 1992 figure to compare against the neutral or "100%" 1992 CPI. Not only is the %33 increase unaccounted for, but the sum has eroded a further 7% even from it's 1992 starting point of $450. Why? That's what we want to find out.
This is a good indicator of the trouble, because Welfare is a set, unvariable income, well representing any deterioration happening through every income sector. This shift is seeing people's spending money dwindling, it's climbing up the income ladder.
Here was a snapshot of those not only unable to spend more, but challenged even harder than in 1992 to keep their simple necessities. Not helping the economy.
So What is Happening Here? What's the problem?
wage increases 1992-2006? In question.
The problem I'm outlining here is one of unbalance, and spending money steadily being swallowed by CPI and unknown compounding factors. The percentages I am working with here will eventually lead to how much of average income is falling behind this exponentially growing band, and how quickly.
For example: if your income in 1992 was $20,000 then in 2007 ideally to be 'on par (ie. not gaining or losing, any purchasing power)' with the increase in the real CPI from 1992 to 2006 you would need to be earning $25,980 a year now, or an average yearly increase of $427.14 over 14 years, to be at exactly the same point as a consumer as you were in 1992.
Average wages in Canada rose as follows (Canada Averages):
2004= %1.02 ($688.11 to $702.61week)
2005= %1.03 ($702.61 to $725.26week)
2006= %1.02 ($725.26 to $746.89week)
if this trend of %1.02 goes all the way back to 1992, so far this information is unavailable, then on average wages have increased %14.35 since 1992, and your wage has increased to $22,870(2006). So again, if you were to spend every cent of this income in a store, would be equal only to $16,031.87 (1992 dollars vs 1992 CPI). Like the Welfare, these increases go largely unoticed. So you will have noticed a definite drop in your purchasing power; to the tune of $3,968.94 or a %19 loss in buying power. Yes, you heard right, by making $2,870 more you are actually able to spend $6,894.94 less anually because of the adjusted 2006 CPI . These are cautionary figures, I do not know the figures from 1992-2002.
(In Part Two of this paper will take the LICO (Low Income Cut Off) and compare figures from 1992 to 2006, more well known as a measure of poverty level income in Canada, from these two levels give them this same simplifying process I should be able to approximate the movement of this LICO scale since 1992.)
Methodology, CPI sampling
Earnings, Average weekly - 2003 to 2007