A social price to the rising cost of living? The bidirectional relationship between inflation and trust.

Abstract

This study examines whether social trust, the general belief that most people are honest and trustworthy, shapes perceptions of personal increases in cost of living and whether perceptions of increases in cost of living affect social trust. We analyze panel data from the Canadian Quality of Work and Economic Life Study (N = 2353) that was gathered between the fall of 2021 and spring of 2022, when inflation rose precipitously in Canada. Using a combination of entropy balancing and logistic regression, we estimate a statistically significant but weak causal effect of social trust on the perception of an increase in cost of living. The estimated causal effect of subjective inflation on declining trust is substantially larger. Additionally, financial strain does not moderate either estimated causal effect. In conclusion, rising inflation appears to not only threaten economic security-inflation also appears to harm the social fabric by depleting social trust.