Preparing for Canada's 18 Year High Inflation

Posted on Monday 15 November 2021

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If you’ve been reading the news lately, chances are that you’ve seen lots of talk about the inflation rate in Canada. It’s a doozy – this fall, Canada’s inflation rate hit the highest it’s been in the past 18 years. This 18-year-high inflation rate increased to 4.4 percent (far higher than the typical control rate of 1 to 3 percent set by the Bank of Canada).

That means you’re paying, on average, 4.4 percent more for goods and services than you usually would. You’ve probably seen proof of inflation already; it’s skyrocketing with increased food prices, drastically inflated housing costs, global supply chain blockages, and higher costs at the gas pump.

Canada certainly isn’t alone – countries across the globe have felt the effects of the pandemic on their respective economies. Chile’s central bank has set interest rates to the highest in 20 years, and Central and Eastern Europe are projected to have the most prolonged period of high inflation. And with average prices up more than 5 percent, the U.S. is currently seeing the highest levels of inflation in 13 years.

Today, the Bank of Canada is expecting inflation rates to continue to remain high for the near-term, subsiding back to a target of 2 percent by late 2022. That means that you could easily be paying more for groceries, gas, and housing for the next 12 months or so.

And with many folks still struggling to make ends meet after layoffs, decreased hours, and career moves sparked by the pandemic, paying more for basic necessities is a scary thought. In fact, a lot of them are looking to get fast payday loans (We know).

What can you do to prepare for Canada’s 18-year-high inflation? What are the best ways to conserve your cash and make sure you can come out on the other side still in good financial shape? Keep on reading – we’ll give you some of the best tips we have to help you gear up for higher prices in 2022.

1. Create an emergency fund

If you don’t have an emergency fund yet, don’t let 2021 slip away without starting one! Having an emergency fund is essential during normal times, but especially in periods of high inflation. An emergency fund acts as your safety net to cover you when you need it the most – whether it’s to make sure that monthly bills are paid or to cover an unexpected financial emergency (such as a home or car repair).

When inflation levels are high and job security is down, an emergency fund can also be a way to make sure that a change in employment (or hours) doesn’t put your monthly mortgage, rent, or utilities at risk.

Starting an emergency fund may feel overwhelming at a time when you’re paying more for your basic necessities already – but the key here is to set aside a manageable amount of money and continue growing from there. Start small if you need to, and continue building your emergency fund over time.

How much should you have in your emergency fund? At the end of the day, there isn’t a tried-and-true rule for what your emergency fund should have, but a good goal is to cover about three months of bills. Your ideal emergency fund may change over time, and that’s okay! Try not to use it unless you truly need to, and continue building your financial safety net even past the high inflation rates.

2. Review your budget

When was the last time that you looked at your budget? If you’re like most folks, we’re willing to bet it’s been quite some time. Get a budget plan together to help identify existing holes and make adjustments to accommodate higher prices due to inflation.

You may need to increase your budget on the essentials, like groceries, rent, and utilities – but that means you’ll also need to make a conscious decision to cut back on spending elsewhere. That might mean temporarily cancelling a streaming subscription (or two, or three) or limiting eating out at restaurants for a few months.

Reviewing your budget might also mean taking the opportunity to rethink how you are saving money. Whether you’re putting together an emergency fund, building toward retirement, or looking forward to a vacation, the best savings plans are simple and easy.

It doesn’t get easier than automating your savings! Set up an automatic transfer so that you don’t even have to think about setting money aside (or risk forgetting about it entirely). Of course, you’ll want to make sure that your savings plan is adjusted for inflation – set reasonable goals knowing that you’ll have to spend more on the essentials, and save what you can without stretching your budget too thin.

3. Reduce interest on credit cards

Interest rates on credit cards can be brutal, especially during times of high inflation – but they’re a necessary evil. Think of your interest rate as a fee that you pay for the ability to borrow money against a line of credit.

While you can’t avoid paying interest on a credit card, you can actively look for ways to decrease the percentage of interest that you pay. Not only does it give you more money back in your checking account, but it also helps make debt more manageable, particularly if you want to have some plastic spending power set aside for a financial emergency.

The average credit card interest in Canada ranges between 19.99 percent and 29.99 percent – and if yours is on the higher end of that spectrum, you’re spending more on interest than you need to. If you have a high balance on your credit card and you’re getting hit with high interest fees, start looking for balance transfer cards!

A balance transfer card can be a great way to get some breathing room on high interest rates. Most will offer either 12 or 18 months of interest-free payments, making it much easier to fit high credit card balances into your monthly budget. But keep in mind that if you don’t pay off the entire balance by the end of the promotional period, you’ll get hit with all of that interest at once – so you definitely don’t want to set it and forget it.

An 18-year-high inflation rate is a big deal, and there’s no doubt that higher prices are going to have an impact on everyone’s personal finances. Don’t let yourself get caught in high inflation without being prepared! Create an emergency fund, review your budget, and look for ways to decrease your existing interest payments wherever possible to ensure that your bank account stays as healthy as possible throughout 2022.