Have you been feeling the effects of inflation lately? Whether you’re filling up your gas tank or picking up groceries at the store, inflation feels almost impossible to avoid these days.
So, what’s inflation anyway?
Inflation is a way to track the rising prices of goods and services. There’s a lot at play impacting these prices such as higher consumer demand or a rise in production costs like labour and raw materials.
Each month, Statistics Canada measures inflation by tracking the prices of a fixed basket of goods and services such as food, shelter and transportation. The average prices of these items are known as the Consumer Price Index (CPI), the most widely used indicator of inflation in Canada.
How inflation impacts your money
High inflation erodes your purchasing power aka your ability to buy things with the money you have. This means in the face of rising costs, your money doesn’t go as far as it used to. That purchasing power weakens when incomes don’t increase with climbing prices. Not to mention, those in retirement are left with less money, as their savings gets them less than they were planning for.
What’s the Bank of Canada got to do with it?
The Bank of Canada says it’s best for the economy when inflation is low, stable and predictable. That’s why it aims to keep inflation around two per cent. While that’s been the norm for nearly three decades, recently that hasn’t been the case.
In an effort to rein in high inflation, the Bank of Canada can increase its key policy interest rate. When interest rates rise, people are encouraged to save and there’s less borrowing and spending. This leads to companies raising their prices more slowly or even reducing prices, which can ultimately lower inflation.
Ways you can combat inflation
Now that we’ve covered the basics, here are a few simple ways you can fight inflation and combat rising costs in your day-to-day life.
- Put off large-scale expenses – If you’re weighing a major purchase, it may be a wise to put it on pause if you’re able to.
- Track your expenses – Take a closer look at your budget and see if you can find ways to reduce your spending.
- Pay off your debt - Dealing with inflation’s rising costs can be difficult enough without your debt adding to the stress. If you can, try to make a significant dent in what you owe so your finances will be in a better position to survive economic turbulence.
- Use a credit card with rewards – The right credit card can go a long way to helping you save money. In this case, it may be worth looking into a rewards or cash back credit card if you don’t already use one.
- Invest wisely - For investors, a period of inflation can be worrisome, but it can also present opportunities for those who know where to park their money. Just make sure you’re comfortable with how much you’ve invested and the risk level attached.
- Talk with an advisor – We know this year has brought unique financial challenges for many, but we’re here for you ever step of the way, wherever you are on your financial journey.
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