Inflation's bite is big. Alberta's capacity to help is bigger

This column is an opinion by Trevor Tombe, a University of Calgary economist. For more information about CBC's Opinion section, please see the FAQ.

Inflation is high — not just in Alberta and Canada, but throughout the world. It reached its highest rate since 1983 this May, when Statistics Canada found average consumer prices were 7.7 per cent higher than the same month last year.

Worse still is its rapid rise. Compared to where we were two years ago, the acceleration of inflation is steeper than at any time since 1952.

There is a silver lining to the story, though. The very same force pushing inflation up provides Alberta's government with an incredible capacity to help. 

High oil prices account for more than half the increase in inflation, and the resulting resource revenue windfall, it turns out, is more than enough to ease the pressure on Albertans. 

If the government shared some of that windfall, high inflation would not only be more manageable, but also more equitable. I'll explain.

Using detailed data on household spending, combined with price changes across a wide variety of goods and services, I estimate what recent price increases mean for households. 

For lower-income families (earning less than $30,000 per year), recent price increases cost an average of $200 per month. This rises to $600 per month for higher-income ones. 

Put another way, the average Alberta household is currently facing financial pressure equal to adding $400 in new expenses each month. This is very large. For perspective, the average monthly grocery bill is roughly $650.

These higher prices mean households must change what they buy, use savings to cover the extra costs, or accumulate more debt. Each month that goes by, these costs continue to mount.

While it may appear that inflation hits those with higher incomes harder than others, this is not the case.

In short, because lower-income households spend so much more of their income, today's high inflation is highly regressive. Consider these costs relative to a family's disposable income (that is, income after taxes).

I find that inflation today is nearly equivalent to a 10-per-cent reduction in the disposable income of households earning less than $30,000 per year. That's massive. It's as though one in every ten dollars earned vanished. For those with incomes above $150,000, the effect is just over four per cent.

Let's get a sense of scale.