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How to Combat Inflation in Canada

If you’re worried about everyday items becoming more expensive this winter, you’re not alone. 

This September, Canada’s inflation rate rose to 4.4%, the highest it has been since 2003. Driven by a perfect storm of post-lockdown consumer demand, supply chain issues, product shortages, and soaring oil prices, many Canadians are feeling the squeeze at grocery stores and gas pumps nationwide.

While the Bank of Canada has held strong in their belief that this recent rise in inflation is temporary, they’re also not expecting it to level out until late 2022. 

So what can you, an average consumer, do in the meantime to reduce its effect on your day to day life? We’ve got some tips below to help:

  • Put off large-scale expenses (if you can)
  • Save on groceries
  • Get a rewards or cash back credit card
  • Pay off your debt
  • Invest wisely

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What is inflation?

Inflation is a word economists and financial experts use to track the rate of rising costs in goods and services within an economy. When inflation occurs, it can result in increased prices for necessary commodities like food and gasoline.

What causes inflation?

The causes of inflation largely depend on which type you’re dealing with. There are two common categories of inflation: cost-push and demand-pull.

  • Cost-push inflation happens when production costs rise (wages, raw materials, transportation, etc) but demand doesn’t. In this case, companies who are forced to pay more to manufacture their product pass that cost onto the consumer, resulting in higher prices.
  • Demand-pull inflation is the result of higher consumer demand for certain goods. When particular products become more popular, their supply begins to shrink. As a reaction to this, many companies will realize that they can start charging customers more for something now considered a valuable commodity, causing prices to rise.

5 ways to combat inflation in Canada

Put off large-scale expenses (if you can)

If you’ve got any big expenses planned for 2022, it may be a wise decision to put them off another year (providing you’re able to). 

While the cost of lumber has thankfully lowered back to normal after a springtime surge, those planning home renovations may feel the sting of increased costs for many other raw materials such as copper, cement, and marble (among others), so if it’s not an emergency job, experts advise that it may be cheaper to wait until the price of all materials subsides.

Similarly, as more of us travel further from our own neighbourhoods and cities once again, post-lockdown life in Canada has led to an increase in purchases of new and used cars. This means that, due to the heightened demand, prices for automobiles are higher than usual. Unless you’re in desperate need, consider holding off on those new wheels until demand (and prices) die down a bit.

Also, with the expectation of inflated prices going forward, there’s also the added benefit of having a bit more money to spend on everyday expenses. Having that buffer may come in handy over the next year.

Save on groceries

According to Stats Canada, food prices are already up 3.9% from one year ago. That’s a significant jump, but there are a few ways you can save on groceries to reduce the impact on your wallet.

To begin with, try purchasing foods in bulk when you can. This can’t always be possible across the board (as many produce items don’t have a long shelf life) but staples such as grains and dried goods can be used for many different dishes and will happily exist in your pantry for a long time. That being said, if you’ve got a batch-cooking plan in the works, you can quickly make use of bulk produce that may provide an extra bit of value for your dollar.

If you’re loyal to a specific grocery chain, see if they have a store credit card. The PC Financial Mastercard, for example, comes with no annual fee and can save you 10 points per dollar on all purchases made at Loblaw’s and all other subsidiary grocery chains. Over time, those points can save you a substantial amount of money on your grocery bill. 

While many food items have seen a spike in price over the last year, the cost of meat has risen especially high, soaring by almost 10 percent. With this in mind, consider eating more vegetarian meals to avoid forking out for steaks or pork chops. Combined with protein-rich legumes like lentils or beans, you’ll save money without skimping on nutrition.

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Use a rewards or cash-back credit card

The right credit card can go a long way to helping you save money during tight economic times. In this case, it may be worth looking into a rewards or cash back credit card if you don’t already use one. 

Both of these card types will let you earn points or cash back to use against your card balance or to make future purchases, depending on their system. What’s more, many feature low annual fees (or none at all), costing you nothing but giving you the opportunity to save big. Tangerine’s Money-Back Credit Card, for example, comes with no annual fee and allows you to earn 2% cash back on two spending categories of your choice. If you chose groceries and gas, for example, just a few months of regular spending in those areas could net you huge savings.

Pay off your debt

Dealing with inflation’s rising costs can be difficult enough without your debt adding onto the stress. If you can, try to make a significant dent in what you owe so that your finances will be in a better position to survive economic turbulence.

Sit down and brainstorm some ways in which you can free up money in certain areas by cutting back, then use the extra cash you’ve saved to begin paying off your debt. 

If there’s no more wiggle room left, another great option is using a balance transfer credit card. Balance transfers cards feature ultra-low interest rates, allowing you to pay off your debt faster once you’ve transferred it over. Those attractive interest rates are typically only for a limited time, however, so you’ll need a solid plan to pay off your debt within that set period in order to take advantage. Otherwise, you’ll be stuck with the same level of interest you had before (or higher). 

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.

Experts recommend investing in commodities like oil, steel, and grains, as their prices rise naturally during times of inflation, giving them a lot of pricing power. In addition, safe bets such as Canadian bank stocks will rarely disappoint due to their size and price control. 

Experts agree, however, that having a diversified portfolio of equities is key to making sure your money will grow faster than the inflation rate, allowing you to build wealth. Just make sure you’re comfortable with how much you’ve invested and the risk level attached.

Can Real Return Bonds (RRBs) protect against inflation?

Real return bonds (RRBs) are bonds issued by the Government of Canada that are designed to protect against inflation by keeping pace with the cost of living. When inflation rises above a certain level, these bonds will begin making extra interest payments biannually in lock-step with the changing rate.

While this sounds like a solid strategy, there are risks involved with RRBs that show they may not be as effective during times of inflation as initially thought.

For one, RRBs typically have a very long duration to maturity (some extend over 20 years). The longer this period is, the the more unpredictable a bond becomes in the face of volatile interest rates.

RBBs can also get tricky at tax time. Any extra payouts for inflation on the principal and interest payments are taxed the year of, even though the principal is only paid once the bond fully matures. Due to this, you may end up regretting the choice to keep them in a non-registered account. A registered account, however, will usually solve that issue.

Ultimately, RRBs can be great for a diversified portfolio, but they’re not meant to fully replace equities or traditional bonds. While an RRB can be an excellent buffer against inflation, that protection may come with added unpredictability.

The bottom line

While periods of inflation can be tough on average Canadians, they don’t last forever and usually level off after about two years. In the meantime, there are lots of ways to safeguard your finances during rocky economic times. Use our tips above and mention any others you have in the comments below.


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