Income Research Paper Series
Modelled Market Basket Measure poverty rates for 2022 and 2023

The Market Basket Measure (MBM) establishes poverty thresholds based on the cost of a basket of food, clothing, shelter, transportation and other items for a family of four that reflects a modest, basic standard of living. A family with a disposable income below the appropriate MBM threshold for the size of the family and the region where they live is deemed to be living in poverty.

Last year, Statistics Canada published, for the first time, estimates for the poverty rate using a simple model which predicts the poverty rate using information on recent trends in inflation and economic growth (i.e., gross domestic product) in order to provide an indication on the likely direction of the poverty rate. All things being equal, poverty rates tend to fall as the incomes of lower-income Canadians grow, and they rise as inflation increases. This analysis updates this procedure for the 2022 and 2023 reference years.

Using the regression model defined in Market Basket Measure poverty thresholds and provisional poverty trends for 2021 and 2022 and updating it with the most recently available data from the distributions of household economic accounts (DHEA),^Note the Canadian Income Survey (CIS)^Note and the latest Consumer Price Index (CPI),^Note we could expect Canada’s overall poverty rate to grow by 21.8% from 2021 to 2022, followed by an additional 13.3% increase from 2022 to 2023 (Chart 1). These growth rates would imply a predicted overall poverty rate of 9.0% in 2022 and 10.2% in 2023. Canada’s official poverty rate in 2021 was estimated at 7.4% using data from the CIS.

Data table for Chart 1



Data table for chart 1
Table summary
This table displays the results of Data table for chart 1. The information is grouped by Year (appearing as row headers), Official poverty rate, Predicted poverty rate and Modelled poverty rate, calculated using percent units of measure (appearing as column headers).

Year	Official poverty rate	Predicted poverty rate	Modelled poverty rate
	percent
2015	14.5	14.5	12.6
2016	12.9	12.9	11.9
2017	11.9	11.9	11.6
2018	11.2	11.2	11.4
2019	10.3	10.3	11.1
2020	6.4	6.4	7.5
2021	7.4	7.4	8.0
2022	Note ...: not applicable	9.0	9.8
2023	Note ...: not applicable	10.2	11.1
... not applicable Notes: The official poverty rate comes from Table 11-10-0135-01. The modelled poverty rate is based on the authors' calculations using data from the distributions of household economic accounts. Sources: Statistics Canada, Table 11-10-0135-01 Low income statistics by age, sex and economic family type; and authors' calculations.

It is important to underscore that these predictions are based on a model, and the official poverty rates could differ depending on the actual data or if another model had been chosen.^Note

All things being equal, poverty rates tend to fall as the incomes of lower-income Canadians grow, and they rise as inflation increases. Modelled results presented in this note indicate that, based on current macroeconomic conditions and price trends, Canada’s poverty rate is predicted to continue to rise in 2022 and 2023, returning to a level close to those observed before the COVID-19 pandemic by 2023.

Appendix

For predicted poverty trends, a model is estimated that describes the poverty rate as a function of the average disposable income of the bottom quintile, in current dollars, per household from the DHEA, the CPI and a time trend. National (all provinces) MBM poverty rates from 2002 to 2021 were used for all available MBM bases (i.e., the 2000, 2008 and 2018 bases). The model expresses the poverty rate, the DHEA disposable income and the CPI in logs. The time trend is linear, and dummy variables are added to account for differences in poverty rates from different MBM bases. Results of the regression are in Table A.1. Although the inflationary (CPI) and trend (time) coefficients are no longer significant at the 10% level of confidence after the model was updated with the latest data, the model was kept the same. It should be noted that, since the annual CPI growth rates in 2022 and 2023 were very high compared with previous years, there is some extra uncertainty for the 2022 and 2023 predicted estimates. However, once the official 2022 reference year poverty estimates are incorporated in the model, its predictive quality should improve.

 

The regression has a modest-quality overall fit, with an R² of 0.771. As expected, disposable income enters the model with a negative coefficient, indicating that poverty falls when disposable income rises, and the CPI is estimated to have a positive coefficient, indicating that the poverty rate would fall when prices fall (all else being equal). Published and modelled data are shown in Table A.2.^Note

References

Djidel, Samir, Burton Gustajtis, Andrew Heisz, Keith Lam, Isabelle Marchand and Sarah McDermott (2020), “Report on the second comprehensive review of the Market Basket Measure.” Catalogue no. 75F0002M2020002.

Gustajtis, Burton and Andrew Heisz (2023), “Market Basket Measure poverty thresholds and provisional poverty trends for 2021 and 2022.” Catalogue no. 75F0002M2022008.

Statistics Canada (2021), “Consumer Price Index: Annual review, 2022.” Catalogue no. 11-001-X.