The most ominous thing about inflation is not that the cost of living rose by 6.7 per cent in three decades last month.
Terrifying is the fact that inflation is gaining speed. The annual inflation rate was 4.8 percent in December, 5.1 percent in January and 5.7 percent in February. Inflation has been on the rise for over a year now, but we’ve never seen a monthly jump like we did in March compared to the previous month.
Let’s look at four challenges to your finances due to the exacerbation of the inflation problem:
Interest rates are rising more than expected.
The surprisingly high inflation rate in March adds to the urgency of the Bank of Canada to act decisively to cool inflation. This increases the likelihood of stronger and faster increases in rate. The central bank’s overnight interest rate has already increased by 0.75 percentage points this year. We expect another 0.5 point jump on June 1, and more increases during the second half of the year. Lines of credit, variable rate loans, and variable rate mortgages will become much more expensive. Some good news about rates – returns on savings accounts and secured investment certificates are on the rise. Four percent of GICs are now available for five years.
There is little chance that the wages will catch up to you
Average hourly wages rose 3.4 percent in March year-on-year, essentially half the rate of inflation. In some sectors it may be possible to negotiate a raise or bonus to fully offset inflation, but on average it appears that wage increases will not amount to a higher cost of living. This means lower purchasing power – you may spend more to buy the same amount of groceries and other goods and services.
The bonds will be fully glued this year
Higher interest rates mean lower bond prices and bond funds. But you already know that if you follow the traditional advice of getting some bonds in your portfolio to mitigate the stock market slump. For the year ending April 19, the FTSE Canada Universe Bond Index fell 9.7 percent. We are a few decimal points from the double-digit losses in the bond.
Accommodation seems poor
The average resale price in Canada has increased by 47 percent over the past two years. Now, the cost of mortgage financing at high rates today is rising. Whether you’re a regular home buyer or an investor, these high financing costs will exacerbate affordability. It would take a significant drop in rates to offset the impact of higher mortgage rates.
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Rob’s Personal Finance Reading List
Car Rental Insurance: Credit Card Option
Dive deep into the collision damage protection available from rewards credit cards. One lesson here is not to rent a Super Premium car.
So you need $5,000 a month to retire
A case study by My Own Advisor blog on how much you’ll need to save to generate $5,000 per month in retirement. Some focus on the very important question of the assumption to be made regarding future inflation rates.
“I’m old, not a fool”
It’s all about a 79-year-old in Spain who has Parkinson’s disease and cannot easily use a banking device or banking app. He gained a lot of support after starting an online petition arguing that banks and other institutions should serve all citizens, rather than marginalizing older and more vulnerable members of society in their rush to online services.
Home prices for income
She illustrated the problem of housing unaffordability: a gigantic and growing gap between growth in home prices and incomes.
Question and Answer
s: What do you suggest I do to take advantage of higher interest rates and inflation? I’m a senior, 77, retired, and mainly on a stable income. I’m not rich, I’m not poor, and my basics are covered. How can I take advantage of the cash I have that has not been invested with my financial planner? I have a TFSA room. This account contains cash and GIC capabilities at the moment.
a: You appear to be a conservative investor, which suggests that your savings and your savings are the right thing to keep. The interest rates for both are now rising as interest rates go up to cool inflation. For some high-risk, inflation-resistant investment options, check out a column I haven’t done in a long time.
Do you have a question for me? Send it my way. Sorry I can’t answer each one personally. Questions and answers are edited for length and clarity.
Today’s Financial Instrument
Websites to help you compare prices for popular products at different retailers in your area and across the country.
Money Free Zone
Boomers, AM radio blast from your past. hit 1977 Mama let him play by Jerry Doucet of Vancouver, who died this week.
Who do I follow on Twitter
Hall of Fame pitcher Ferguson Jenkins, a native of Chatham, Ont. He won 20 games in six consecutive seasons for the Chicago Cubs, who unveil a statue of him on May 20.
In case you missed these personal finance stories for Globe and Mail
- Don’t believe the ESG marketing hype – you won’t make the world a better place with your investment portfolio
- How to prevent inflation and taxes from eating up capital gains
- Can Genevieve retire and spend more time traveling?
More Rob Carrick coverage and money
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