Rising Prices, Eroding Trust: Inflation's Hidden Social Cost
Inflation doesn't just drain wallets — it drains trust. Using Canadian panel data collected during the country's sharpest inflationary surge in three decades, this study finds that people who experienced rising costs became measurably less trusting of others, while those with higher trust were somewhat less likely to perceive costs as rising at all. The effect of inflation on trust was nearly 60% stronger than the reverse.
What we studied
Inflation is almost always framed as an economic problem — a matter of purchasing power, interest rates, and monetary policy. But rising prices do something else too: they generate stress, amplify perceptions of inequality, and shake confidence in institutions. This study asks whether those forces connect to social trust — the general belief that most people can be relied upon to act honestly. Specifically, it asks two questions that have rarely been posed together: does higher social trust make people less likely to perceive their cost of living as rising, and does the personal experience of rising prices erode trust over time?
The study draws on C-QWELS panel data collected across two waves, fall 2021 and spring 2022, a period during which Canada's annual inflation rate climbed from 4.4% to 6.7%, the highest in over 30 years. The analytical sample includes 2,384 Canadian workers. About 80% reported experiencing an increase in their cost of living between waves. To estimate cause and effect in both directions, the researchers carefully matched people who were otherwise alike except for the experience being studied, so the comparison was not distorted by pre-existing differences between groups.
Four hypotheses were tested: that trust reduces perceived inflation; that perceived inflation reduces trust; that the inflation-to-trust pathway is stronger than the reverse; and that financial strain amplifies both effects. The first three were supported. The fourth was not — a finding that turned out to be as revealing as the ones that held.
What we found
Both pathways were real and clear, but they were not equal. Starting out with higher social trust lowered the chance of later perceiving a rise in cost of living by roughly 6 percentage points, a modest but meaningful buffer. The reverse pathway was stronger. Personally experiencing rising costs lowered the chance of trusting others at follow-up by about 9 percentage points. Inflation's effect on trust was nearly 60% larger than trust's effect on perceived inflation, and the careful matching approach showed this effect was almost 50% larger than simpler methods had suggested.
The mechanism behind trust's buffering role likely runs through optimism and institutional confidence — people with higher trust may interpret economic disruption with less alarm and attribute rising prices to systemic rather than malicious causes. The mechanism behind inflation's trust-eroding effect is more direct: sustained price increases create stress, intensify feelings of being treated unfairly, and undermine confidence in the institutions people expect to maintain stability.
The most surprising finding was that financial strain made no difference. The researchers expected that people experiencing the most personal hardship would feel the trust-inflation link most acutely, but that expectation was not borne out. The two-way relationship held regardless of individual financial circumstances, suggesting the mechanisms operate through shared social experiences of economic disruption rather than personal deprivation alone. Inflation's corrosive effect on trust appears to extend well beyond those who can least afford it.
What this means
Inflation is conventionally measured in percentage points and managed through interest rates. This study adds a dimension that monetary policy rarely accounts for: the damage rising prices do to the social fabric. When trust erodes, the costs extend beyond any individual's balance sheet — to civic participation, willingness to cooperate, confidence in institutions, and the everyday willingness to rely on other people. The finding that financial strain does not amplify these effects means that high-inflation periods are socially corrosive across income levels, not only for those struggling most to get by.
Price stability is a social goal, not just a macroeconomic one
This study shows that rising costs erode generalized trust — the social glue that supports cooperation, civic life, and institutional confidence. Central banks and governments that communicate clearly, credibly, and early about inflation may help limit its spillover into social distrust. Framing price stability purely as an economic objective understates its stakes. Policymakers should treat inflation control as social policy, and consider the trust costs of prolonged inflationary periods when evaluating the speed and transparency of their responses.
Build social capital before the next economic shock arrives
Social trust acted as a modest buffer against perceived inflation — and because financial strain did not amplify the effects, these benefits extend across income levels, not only to the most vulnerable. Programs that foster community connections, civic participation, and local institutional confidence may reduce individuals' sensitivity to the social disruptions that accompany future economic shocks. Investments in social infrastructure are not only worthwhile in stable times; they build the resilience that matters most when prices rise.
Treat inflation as a sociological phenomenon, not just economic
This study demonstrates that inflationary periods carry measurable social costs — including real damage to generalized trust that conventional regression methods underestimate. Future research should track how sustained inflation shapes longer-term trajectories of trust, social capital, and civic engagement, and examine whether trust-eroding effects persist or recover once prices stabilize. Extending the study window beyond working Canadians, and incorporating institutional trust alongside generalized trust, would substantially deepen understanding of inflation's social consequences.