The process of financial stability isn’t always easy, and the most recent rise to inflation adds another hurdle. The end of 2021 saw the highest jump in inflation since the early 1980s.
Inflation in Canada averaged 4.8 per cent last year, while the United States settled at seven per cent, the highest since 1982.
Laurence Booth, a Rotman School of Management finance professor, said government spending played a role in the inflation rise.
“With huge government intervention in the capital market, spending money, providing money for people basically not to work or compensating people, businesses for losses, and huge borrowing by the federal government,” he said.
“The federal government debt has doubled basically over the last four years,” Booth said.
He said a number of factors played a role in rising inflation, including the global pandemic affecting people’s ability to work, mingle and spend money freely, and slowing supply chains.
The Bank of Canada projected before February 2020 that inflation was going to be around two or three per cent.
But COVID-19 changed everything, leaving people to question how much their dollars are worth, something that David Goldreich, also a finance professor at Rotman, emphasized.
“People often think how many dollars do I have,” he said. “If I have more dollars, I’m richer? No, it’s not. It’s not dollars that makes you rich. It’s purchasing power.”
Goldreich said inflation affects every strata of Canadian society, but hits hardest among the middle to lower classes, trimming their buying power. Groceries, in particular, are goods that saw some shortages over the last two years, and felt when prices change.
Booth said the Bank of Canada calculates the Consumer Price Index, which is the average of a particular bundle of goods, when it determines the inflation rate.
“A large amount of that is gasoline prices, rent, and foodstuffs,” he said. “All those are extremely volatile.”
Due to that volatility, the prices of those goods could go up and down at any time, with some being easier to predict than others, such as the price of specific food items dropping once supply chain issues are sorted out.
A Royal Bank of Canada survey released last month showed Canadians are concerned that inflation during the pandemic is hitting their retirement savings. Almost half — 47 per cent — of the 2,000 adult Canadians surveyed by Ipsos in October 2021 indicated they were concerned whether they will have enough saved for retirement.
“The unexpected has changed lives over the past two years, but if you have a plan, it’s easier to adapt to those changes,” said Stuart Gray, the director of RBC’s Financial Planning Centre of Expertise.
“A plan helps you keep on top of your finances, so you know what adjustments you can make for changing circumstances while saving for today and investing for the future,” Gray said.