Dear John,

Inflation – it’s a word we have heard a lot of lately.

Canada’s inflation rate recently jumped to a 31-year high of 6.7%!

Most Canadians born after 1990 have never experienced a serious episode of inflation like this, and don’t know what to expect.

As you might know, our motto here at the Fraser Institute is “if it matters, we measure it”. Since not much more matters than the overall health of the Canadian economy, we have spent a lot of time studying this recent rise in inflation.

One recent study noted who the beneficiaries of high inflation are: governments.

You won’t hear that from our political leaders, but it’s true: governments are the clear beneficiaries of inflation, in two main ways.

First, by reducing the purchasing power of the Canadian dollar, inflation effectively reduces the real cost of servicing and retiring outstanding government debt.

Considering that the latest federal budget projects federal debt will reach $1.3 trillion by 2025, the federal government stands to benefit hugely from higher inflation.

Second, while personal income taxes are indexed to inflation by the federal government, asset values used to calculate capital gains taxes are not.

This means that increases in the values of equities, real estate and other assets – that are purely the result of inflation – will push many Canadians into higher tax brackets when they are sold, increasing government tax revenues even though the inflation-adjusted incomes and wealth of most Canadians do not.

John, when the news of the recent Bank of Canada interest rate hike came out, we took to social media with a series of posts to explain not just the effects of inflation, but why the sudden increase in inflation is significant.

I’m happy to report that these posts reached tens of thousands of people on social media. They guided people to our study, which was viewed thousands of times on our website. And our op-eds on the subject reached millions of people in outlets from coast to coast!

That is what we do at the Fraser Institute: give Canadians the facts and numbers they need to hold governments accountable!

If you’re able to, please consider making a donation today.

We do not accept government grants for our research, we rely entirely on supporters like you. Each donation helps us reach even more Canadians!

Thank you for your continued support.

Sincerely,

Niels Veldhuis
President
The Fraser Institute