March 16, 2023
Inflation is when prices go up, and as a result, the value of money goes down. It’s a term we’ve become all too familiar with as inflation in Canada hit a 40-year high of 8.13% in 2022. Although inflation has slowed in more recent months, prices are still elevated.
In Canada inflation is measured using the Consumer Price Index (CPI), which is the cost of a fixed basket of goods and services. Inflation is the percentage change between the CPI in the current month and the CPI in a base month or the same calendar month of the previous year.
Inflation is complicated, with a multitude of triggers such as supply chain disruptions, geopolitical events, labour shortages, changes in consumer purchasing patterns, poor weather or natural disasters, tariffs, and higher input costs. Unlike past trends, many of these conditions or pressures have been occurring simultaneously over the past 2+ years
The Bank of Canada aims to keep inflation at around 2 percent. A certain level of inflation is considered positive because it means the economy is growing. It can also work in the favour of debtors, whose debt has less worth as time progresses, and whose wages are presumably keeping up with inflation. Low, stable inflation helps money keep its value and it makes it easier for businesses and individuals to plan their finances.
When inflation gets too high, the loss of purchasing power hurts everyone’s standard of living. High inflation is often unstable, making it difficult for businesses, consumers, and investors to plan their spending. High inflation is especially hard for those whose incomes don’t keep pace with rising prices, such as pensioners and those with low pay.
The role of inflation should be a key consideration in your retirement or long-term financial plans. Here are some ways to protect yourself against inflation:
Inflation is a force largely out of our individual control, and protecting yourself against it is a long-term process. By investing and spending with inflation in mind, and increasing your income over time, you can help ensure your assets and portfolio remain protected. Our team of wealth advisors at ABCU are knowledgeable on the latest inflation hedging investment strategies, and they’re ready to help you build a budget and portfolio that preserves your wealth. Contact us to book your appointment: 1-888-929-7511.