13 ways to fight Inflation for Canadians 🍁
What you can do about it
Budgeting with Inflation
Our first house mortgage in 1981 was set at a 19% interest rate per year! We paid 1/5th of the cost of the home every year in interest payments. None of that was even applied to the principal payment! In 1981 the inflation rate in Canada was 12.4% per year.
If we continue buying expensive clothes, shoes, dining, alcoholic beverages, expensive vacations, sugary drinks, pre-made meals, newer high-end SUVs, and driving long distances to and from work because we have an expensive money-suck-of-a-mortgage in the suburbs, then of course any interest rate increase will affect you.
Canada's inflation rate rose to a new multi-decade high of 8.1 percent this month (July 2022), as the price of most things rose swiftly. The US rate rose to 9.1 percent.
Higher interest rates in Canada are trying to help this rising inflation. Payments may get tight for people who have a fixed income situation. The cost of credit borrowing and mortgages has increased. By a lot.
The Bank of Canada’s Policy Interest Rate went from .25% in January 2022 to 2.5% in Mid July, 2022. For you math nerds, that a 1000% increase in 6 months.
The Theory Behind Why the Bank of Canada is Raising Interest Rates:
Higher interest rates encourage saving and discourage borrowing and, in turn, spending. In response, companies increase their prices more slowly or even lower them to encourage demand. This reduces inflation. Lower interest rates work in the opposite way and can help increase inflation if it is too low.
What’s Inflation?
Inflation is the decline of purchasing power of money over time.
The inflation rate is 8.1% a year in Canada today (mid July, 2022).
Know that your lifestyle can dictate how much inflation will affect your cost of living.
The Consumer Price Index or CPI is the country’s main gauge of inflation.
What is included in the CPI index in Canada?
The goods and services in the CPI basket are divided into these major components:
Food—groceries and restaurant meals
Shelter—rent and mortgage costs, insurance, repairs and maintenance, taxes, utilities
Transportation—vehicles, gasoline, car insurance, repairs and maintenance, public transit costs
Household Expenses—phones, internet, child care, cleaning supplies
Furniture and Appliances
Apparel—clothing, footwear, jewelry, dry cleaning
Medical and Personal Care—prescriptions, dental care, eye care, haircuts, toiletries
Sports, Travel, Education, and Leisure
Alcohol, Tobacco, and Recreational Cannabis
13 Things You Can Do
Set yourself up for the long term by doing what you can to help your day-to-day financial and budgeting needs:
- Cut back as much as possible on the above items. We throw away more than 15% of the food we buy
- Live in a walkable neighborhood (more below)
- Live in a subsidized medical province (more below)
- Transportation: Gas up at Costco (My friend from Europe’s awesome newsletter-Better yet, get an E Vehicle) (Better yet, ride a bike)(Best yet, ride an e-bike).
- Live in one of Canada’s Warmest Cities:
Victoria, BC
Vancouver, BC
St. Catharines, Ontario
Kelowna, BC
Halifax, Nova Scotia
- Buy local fruit and vegetables (more below)
- Grocery shop smarter with a list:
- Do easy fixes around the house yourself by following YouTube how-to vids - https://www.youtube.com/results?search_query=fix+a+leaky+shower+head
- Watch your utility consumption by lowering the furnace, turning the lights off - Good Read: https://www.koho.ca/learn/how-to-save-money-on-your-utility-bills/
- Negotiate your cable, internet, tv subscriptions, and cell phone packages. https://www.genymoney.ca/step-by-step-guide-on-how-to-negotiate-telus-and-shaw-internet/
- Consider working an extra shift at work to bring home a bit more income from your job. Or try to negotiate a raise.
- Make more money with a Side Hustle: 100+ Best Side Hustle Ideas to Make $500+ in Your Spare Time
- Don’t Gamble with your money. Invest wisely. And watch this video:
Watch This Video for the secret to retiring in just 10 years!
Mister Money Mustache’s (AKA: Pete Adeney) Website is here: https://www.mrmoneymustache.com/
Walkable Neighbourhood:
How to tell if your neighbourhood or future neighbourhood is walkable?
Under the Neighbourhood Tab on a https://realtor.ca home for sale listing, there is info about the location. You can use this info if you are renting or buying. For renters, just find an MLS listing near where you want to rent and look up this info in the area.
Best Place to Live for Medical and Health Care
In Canada BC is the top-placing province, scoring an "A" on the health report card and ranking third overall, after Switzerland and Sweden. Newfoundland and Labrador, the worst-ranked province, scores a "D-" just below the worst-ranking country, the United States.
Buy Local - Where do they Grow Fruits in Canada?
Climate dictates where you can grow fruits in a particular location. Growing fruit is restricted to areas where the temperature doesn’t reach -20°C.
Where?
In BC strawberries, raspberries, loganberries, and grapes are cultivated in the Lower Mainland area. The Lower Mainland is a geographic and cultural region of the mainland coast of British Columbia that generally comprises the regional districts of Metro Vancouver and Fraser Valley.
The fruit-growing region is the Okanagan Valley. The valley is in the rain-shadow area of the interior; hence, fruit growing is dependent on irrigation. The complete range of fruit crops is grown, (cherries, peaches, pears, plums, prunes, grapes, and more) but the major crops are apples.
The 'Wine Capital of Canada', Oliver (just over an hour drive south from Kelowna)- is home to nearly half of British Columbia's vines and more than 40 wineries.
Ontario The moderating influence of Lakes Huron, Erie, and Ontario, coupled with suitable soils, allows the growing of a complete range of fruit crops in southwestern Ontario. The more tender fruits (e.g., peach, cherry, grape, plum, pear) are limited to the Niagara Fruit Belt on the southwest shore of Lake Ontario. Apples are grown over much of the southern part of the province.
Vegetables
Ontario, Quebec and British Columbia combined accounted for 90% of the total vegetable cultivated area while making up about two-thirds of the total fruit cultivated area. They include:
Carrots, Lettuce, Soy Beans, Green Beans, Peas, Radishes, Carrots, Cucumbers, Kale, Swiss Chard, Corn, Peas, Zucchini, Onions, Tomatoes, Cucumbers, Peppers, Potatoes
The crop grown with the largest acreage in Canada is wheat, followed by canola. Corn and wheat are widely grown across the country. Soybeans are found mostly in Ontario, Quebec, and Manitoba while canola is grown principally in Western Canada.
Most of Canada’s crop farming takes place in the Prairie provinces (Alberta, Saskatchewan, and Manitoba). Saskatchewan produces the most durum wheat, canola, and lentils.
So if you want fresh access to any of these food items, and ultimately lower price because of cheaper delivery costs, then pick an area to live in that will allow you to buy local. “Buy local” used to be defined as food produced within 50km of where it is being sold. In 2013 the definition changed to “…produced in the same province”.
Addition: 2023 in Review: A Frugal Couple’s Spending and Income in Vancouver
“Highlights: This year we had a combined net income of $101,014, and spent $29,954, for a total savings rate of 70.4%.”
More:
How the central bank's latest big hike is squeezing Canadians with mortgages
May be a Good Time to invest in GIC’s again?
Thanks to the Subscribers!
What you do to help with everyday living costs? Leave a comment here.
Peace!
Great and timely article Paul! There are, of course, differences in US and Canadian tools available but "Don't gamble with your money. Invest wisely" holds true no matter where in the world readers might be! Great mantra.
Your medical and healthcare point is a tough one to read as an American but unfortunatly true. Ugh.
First, let me thank you for writing a piece that is VERY RELEVANT to how we are living our lives. Whereas some people have a penchant for ruminating on lots of dubious, airy-fairy, ill-defined feelings, I can always count on you to bring me back to earth.
One issue, re inflation, that has bugged me for years:
1) You mentioned that high interest rates are a favorite tool for fighting inflation. You noted, quite correctly, that by cooling off the economy, they can reduce inflation. They will induce people to save instead of spending with abandon.
HOWEVER, I think that sometimes high interest rates are employed to fight inflation that was not caused by overheating.
EXAMPLE: In 1980, US inflation spiked to very severe levels. The Fed Reserve hiked the discount rate to a dizzying degree.
The consequences were so severe that in the second quarter of 1980, I read that the GNP (a precursor to the GDP) declined at an annual rate of 8.2 percent (But it's hard for me to believe that it was that bad; maybe it was a typo in an article I had read)
However, the inflation was not caused by overheating.
THE INFLATION WAS CAUSED BY IRAN'S DRAMATIC INCREASE IN OIL PRICES IN 1979. Essentially, we got a cure for inflation caused by a malady we did not have. The economy was not overheating, and high interest rates were an unfair imposition on Americans (which for numerous reasons spilled over into Canada and the developed world in general) . The consequence: A very painful contraction in the US economy until, about, the end of 1982.