You’ve likely heard the assertion that Canada has the fastest-growing economy among the G7.
Liberal supporters cite a rapidly increasing nominal GDP as evidence of Canada’s impressive recovery. On the surface, it sounds great. But peel back the layers, and you’ll see the reality. It’s not as shiny as it seems.
Nominal vs. Real GDP: The Key Difference
Nominal GDP is the total value of all goods and services produced within the country, unadjusted for inflation. It’s the “big number” politicians love to toss around because it’s easier to make it look impressive. But here’s the catch: when prices go up, nominal GDP goes up too, even if the economy isn’t actually growing in any meaningful way.
Real GDP, on the other hand, adjusts for inflation. It tells you whether we’re producing more stuff, not just paying more money for the same amount of stuff. Real GDP is the metric that matters if you’re trying to figure out if life’s actually improving for Canadians. Here’s a simple example:
Imagine Canada’s economy produces 10 million widgets a year. In Year 1, each widget costs $10, so nominal GDP is $100 million (10 million widgets x $10). But then inflation drives prices up by 20%. In Year 2, widgets now cost $12. Nominal GDP climbs to $120 million (10 million widgets x $12), but we’re still producing the same 10 million widgets. The nominal GDP rise looks great on paper, but real GDP hasn’t budged because the actual output hasn’t increased. The economy didn’t “grow” in any meaningful sense—you’re just paying more for the same stuff.
Inflation Isn’t “Fixed,” and It’s Not Just COVID’s Fault
Let’s talk inflation. Yes, the pace of inflation has slowed down, which means prices aren’t rising as quickly as they were a year ago. But let’s not kid ourselves. The damage is done. That $8 head of lettuce isn’t dropping back to $3 anytime soon. Slowing inflation doesn’t mean prices are going back to normal; it just means they’re climbing less aggressively.
Here’s an example to put it into perspective. Say your monthly grocery bill was $500 before inflation went wild. After inflation pushed prices up by 20%, that same cart of groceries now costs $600. Even if inflation slows to 2% next year, your bill will rise to $612. The worst part is that your bill will never drop to $500 again. Why? Because inflation compounds. Once prices rise, they stay at that level and build on it. There is no such thing as “negative inflation,” where prices fall back to their old levels across the board. Instead, that 2% inflation means $600 gets an additional 2% tacked on top. Over time, the compounding effect ensures inflation, so living keeps creeping upward.
Politicians celebrating a “return to normal” are conveniently ignoring the new, higher baseline. It’s like saying a wildfire is under control because the flames are smaller, while ignoring that half the forest has already burned down. The damage is done, and now we’re living with the aftermath.
And before the Facebook “experts” jump in, yes, inflation has global factors, and yes, COVID disrupted supply chains. No, it’s not that simple: countries with effective policies have bounced back more effectively. Blaming external factors is limited when other governments have taken stronger action to mitigate the impact for their citizens. The fact is, Canada’s policy response has been underwhelming. While billions were funnelled into global climate initiatives and foreign aid, meaningful support for domestic issues like housing, food production, and supply chain resiliency was noticeably absent. It’s hard to feel good about “saving the world” when Canadians are struggling to keep their fridges stocked.
What Could Have Been Done?
Here’s where the frustration kicks in. The government had options to make life a little easier for regular folks, but instead, they leaned on surface-level optics. Here are a few things that could’ve helped:
Cutting GST on Essentials: groceries, for example, are a basic need. Removing taxes on necessities could’ve provided immediate relief for struggling families.
Targeted Tax Breaks: Instead of broad-stroke spending, targeted tax cuts for lower and middle-income earners could have helped people keep more of their money, counteracting some of the pain from rising prices.
Improving Supply Chains: A significant chunk of inflation came from supply chain disruptions. The government could have invested in infrastructure and streamlined processes to ensure goods moved faster and more efficiently.
Support for Domestic Production: Encouraging local production of food and essential goods could reduce reliance on imports and stabilize prices over time.
The Bottom Line
When politicians promote nominal GDP as proof of economic prosperity, they should be cautious, especially considering the current high cost of groceries. While nominal GDP may be increasing, it’s primarily due to an increase in the cost of goods, not an increase in the value produced by Canada’s economy.
And while inflation may no longer be spiralling out of control, don’t mistake that for a victory lap. Indeed, the pandemic and global factors contributed significantly, but it’s important not to oversimplify the situation. The government’s inaction on meaningful measures to support Canadians during this adjustment period is glaringly obvious. Add to that misplaced spending priorities, like billions poured into international climate goals while basic domestic issues go unaddressed, and it’s clear where the frustration comes from. So next time you hear about “booming” numbers, remember: it’s not growth. It’s inflation, with a PR team.
