A high rate of inflation, such as what Canada is experiencing right now, means the cost of goods and services are increasing quickly — much faster than wages.
Forty-five percent of Canadian adults say they are very concerned about inflation, according to a March 2022 NerdWallet survey conducted online by The Harris Poll among 1,018 Canadians. Another 45% are at least somewhat concerned.
These worries are justified: Inflation can have a negative impact on quality of life, especially for those with lower incomes. But certain choices, like how you budget, where you shop and where you choose to stash your savings, can help you hedge against the effects of high inflation.
What is Canada’s inflation rate?
Economists measure inflation, or the rate at which the price of goods and services are rising, using the Consumer Price Index. Inflation is impacted by fluctuations in production costs and demand for specific products and services.
Annual inflation rose 3.1% in October 2023, according to Statistics Canada. Meanwhile, average hourly wages rose 4.8% year-over-year.
October’s inflation rate was 0.7 percentage points lower than September 2023’s rate of 3.8%. Inflation is down but has yet to stabilize near the Bank of Canada’s 2% target rate. October marks the 31st consecutive month that inflation has exceeded the Bank of Canada’s benchmark.
How to hedge against inflation
High inflation can be a cause of financial stress for many Canadians. Increasing your income to align with prices is one way to hedge against inflation, but that’s easier said than done for many reasons.
Here are some other ways to manage soaring costs if making extra money isn’t possible right now.
1. Reassess your spending habits
If inflation is making it difficult to stay within budget, take a moment to reassess your cash flow and where it’s going. In fact, 83% of Canadians say their spending habits have changed in response to inflation, according to NerdWallet’s survey, with 33% adopting more conservative spending habits.
Start by determining if there are things you can temporarily do without so to ensure essential needs are covered, like housing, groceries, transportation and utilities. For many, this reassessment may result in pressing pause on non-essential expenses like dining out, subscription services or gym memberships.
2. Take on new debt sparingly (and avoid variable rates)
Although the Bank of Canada kept debt interest rates low during the pandemic in an attempt to offset inflation, it has raised rates in 2022. When rates go up, variable-rate debts can suddenly cost more.
To hedge against this sudden increase, you might refinance your variable-rate mortgage into a fixed-rate loan or consolidate high-interest credit card debt into a personal loan with predictable payments.
And be wary of taking on a lot of new debt in general: even when rates are low or fixed, new debt adds a new monthly payment to your budget, and reduces your financial flexibility.
3. Become a sale shopper
Speaking of essentials, now is the time to get more serious about becoming a bargain hunter. This doesn’t mean that you need to turn into an extreme couponer, but rather that you might pay more attention to sales, and allow them to guide where and when you shop.
Forty-seven percent of Canadians are paying more attention to sales and discounts in response to rising inflation, according to NerdWallet’s survey, while 25% say they’re switching to cheaper brands and 20% are buying more items in bulk.
Taking advantage of price matching policies is another smart way to save. It may mean being able to score an item you need at a steep discount, or getting reimbursed if a recently purchased item goes on sale later.
4. Maximize loyalty and reward programs
Speaking of grocery stores, many Canadians participate in membership programs offered by their go-to grocery store, such as PC Optimum, (the loyalty program operated by Loblaw Companies and Shoppers Drug Mart). Take a few minutes to actually look at your program’s app or website before you go shopping and see what the deals are. Use them to inspire your shopping list and earn extra points to put towards future spending.
And don’t forget about credit card points or rewards you’ve accumulated. You may be able to redeem them for cash back, travel discounts and more. Furthermore, some credit card companies run occasional promos for cashing in points on things like merchandise or gift cards that could come in handy and help you save.
5. Be strategic with savings
Rising prices aren’t the only negative effect of high inflation: it can also mean earning less interest on your savings. If you’re worried about the volatility of investments or don’t like the variable rates of high-interest savings accounts, consider a Guaranteed Investment Certificate.
With a GIC, your money will be unavailable for a period of time (ranging from a few months to several years) but the the interest rate is fixed. While your HISA or investment earnings may decrease during periods of high inflation, a GIC will accrue interest at a consistent rate.
This survey was conducted online by The Harris Poll on behalf of NerdWallet from March 22-25, 2022 among 1,018 Canadian adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within + 2.8 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Marcelo Vilela at [email protected].
Debt can be divided into several types: secured and unsecured, good and bad. Other types of debt include credit card debt, student loans, medical bills and mortgages.
Buy now, pay later is a point-of-sale financing option that divides the total cost of a purchase into several smaller payments, often without charging interest or fees.