Food, gas, housing and everything else are going up in price, what do we do!?
Recent stats calculate that inflation is now up to 5%! A rate of inflation not experienced since 1991!
What is normal inflation?
Experts estimate inflation to be between 1-3% per year, so 5% is a pretty significant increase.
What does that mean for the everyday Canadian? It means that instead of expecting a 4 cent increase for a $2 cup of coffee at Tim Hortons, that we will see a 10 cent increase instead. Ten cents doesn't sound like a lot of money, but we can really see the effects of inflation reflected in the cost of a vehicle. For example, the price of a $50,000 SUV is expected to rise to $51,000 with regular inflation but instead we see it rise to $52,500 with a 5% increase. Therefore consumers can expect to pay an extra $1500 for the same vehicle. In the case of housing, Canadians might expect an increase from 700K to 714K but instead housing prices may rise to 735K!
Why did inflation go up so much
During the pandemic, governments flooded the markets with more money, including in the form of CERB payments and other funding. Plus, more money in the hands of consumers, drove up demand for products and when the companies were unable to meet the demand with enough supply, the price increased with the demand.
I think we all saw the price of puppies and housing go up significantly during the pandemic as another huge example.
It wouldn't seem so taxing on our wallets if it was just luxury items that increased with inflation but for the average Canadian, inflation is also reflected in the price of gas and groceries which impacts our basic necessities.
One recent study says families could be spending around $966 more on groceries in 2022 due to inflation.
What is the response of the banks during inflation
Usually banks tend to raise interest rates to curb spending and as a result, decrease demand thereby lowering product prices and eventually lowering inflation.
However the downside to this for consumers, is for those who have floating interest rates on their mortgage, this means paying more for living in the same place! However thankfully, the banks were wise enough to implement the Stress Test in 2018, to allow for rising interest rates to protect both themselves and the consumer. To read more about the Stress Test, check out this blogpost, First Time Canadian Homebuyers and the Stress Test.
What if I'm receiving a Pension?
How does inflation impact those currently retired and receiving pension payments from LAPP?
I'm not sure about all the other pension plans, but my Alberta nursing pension plan LAPP (local authorities pension plan) is partially indexed to inflation using the Consumer Price Index, which means it is calculated annually with a COLA (cost of living adjustment) at a rate of 60%. Since the cost of living went up to 5% then LAPP should match it but only up to 60% which equals a 3% inflation rate. However, this might not take effect immediately.
The concern with using the Consumer Price Index to calculate inflation, is that it doesn't include house and condo prices. These prices are excluded because they are considered capital assets, not included in the basket of consumer products that the index is based upon.
Thankfully, there are still steps that Canadians can take to combat rising inflation whether you are on a fixed income or not.
Overall, Lovett-Reid said there isn’t one single thing that will help save consumers money during this period of high inflation.
"It's going to be a series of doing a lot of little things," she said. "It's not about the big win."
So here are 7 little things that you could do:
What we can do in the meantime, is start budgeting if you are not already! By budgeting, you get a better bang for your Canuck buck because by already having a good awareness of your expenses, you can make further adjustments to your budget by either:
Cutting out some luxuries
Making more money!
It totally depends on your individual circumstances but guess what, you get to decide what you value in your budget
whether you want to cut out some spending for now... or if you don't want to make cuts to your spending, whether you want to pick up extra shifts at work or temporarily get a second job, until inflation goes back to normal rates.
You could start spring cleaning and look around and see what you can sell. Last year, I made $500 just selling random stuff from around my house (I sold a Keeper and some My Little Ponies from my childhood).
2. Delay Large Scale Purchases:
Put off large scale purchases until inflation goes down. Delay, purchases such as vehicles or lumbar for renovations. Keep saving and wait until prices level out again. Potentially look at going to places like Habitat for Humanity where they have excess home renovation materials. It's like the "Value Village" of construction materials without necessarily being pre-owned. Just keep in mind that it make take more of your time to be discerning about which items are available because there are not many regularly stocked items. Stock is based on whatever gets donated.
3. Switch to Cashback or Travel Credit Cards:
If you already have the money saved to make these big purchases, look at getting a credit card that gives you the best cashback option or helps you get points towards a plane ticket. Check out how to travel hack with credit card points in this blogpost, Can Canadians Hack the Travel, Eh? Take advantage of travel hacking or credit card churning!
4. Pay off Debt:
Pay off your debt while the interest rates are still low. This is a necessity regardless of whether inflation is high or low, but it would really benefit you to pay off your debt while the interest rates are still lower. The Bank of Canada is likely going to raise interest rates over the next year.
5. Start Investing:
Start investing if you aren't already doing so because the markets have taken a bit of a correction lately, therefore some prices may be lower, which enables you to get into the long term investing game. Check out this blogpost about how to start investing called Steps to DIY Investing.
6. Negotiate working from Home:
See if you are able to continue working from home so that you can save on fuel costs. Not to mention, saving time by not having to deal with traffic and preserving your vehicle from additional wear and tear from usage.
7. Save on Groceries:
Also, if you are working from home, you might have more time to cook and prepare food and snacks, instead of buying from restaurants. This could also save you money in your food budget.
Instead, save your restaurant spending for special celebrations. And don't forget to budget for a generous tip to those servers, who were unemployed during the pandemic.
Explore having a meatless day of the week or buying meat and other staple products in bulk and then try batch cooking to make the most out of your meals. Check out more ideas on How to Save Money on Groceries.
Remember, it's not all doom and gloom,
The Bank of Canada says high inflation rates will continue through the first half of next year, but by the second half of 2022 should fall back to their comfort zone of between one and three per cent.
By the end of next year, the bank is forecasting the annual inflation rate to fall to 2.1 per cent.
So hopefully, this is just a temporary setback in the average Canadian's life following a pandemic. There is not a lot we can do about inflation individually but we can take steps to be intentional with how we spend our own money and what we value spending our money on.
Now Go and Be Intentional about thriving during rising inflation!