The past year in personal finance has been like watching the events of a normal decade or two played at high speed.
So much drama in such a short period. The worst inflation in decades, soaring house prices, a flaming-hot stock market and a growing acceptance of cryptocurrency, even as it bounced around in price. We’ve also seen economic misfortune, including a surge in the usage of food banks and the worst housing affordability in 31 years, according to RBC Economics.
A calmer year in 2022 would be most welcome, but don’t count on it. Here are the numbers that determine how it all turns out:
Prices grew at a rate of 4.7 per cent compared with a year earlier in October and November, the highest inflation readings since February, 2003. Inflation takes a blowtorch to your household finances, forcing you to spend more to buy the same old things. Interest-rate increases are expected as soon as the spring, and this could dampen some of the heightened demand we’re seeing for goods and services. Supply chain disruptions caused by the pandemic will also have to ease for inflation to decline.
You’re most vulnerable to inflation if you’re a senior relying on conservative investments such as term deposits, or if you work at a job where pay is rising modestly or not at all.
A sure sign that inflation is settling in is employers offering higher wage increases. Wages (as reported in monthly employment reports from Statistics Canada) suggest this is already happening. The forecasters at Capital Economics say there’s a strong chance that wage growth will exceed 3 per cent annually by the end of the first quarter of next year, up from a late-2021 level of 2.2 per cent.
With inflation as high as it is, a wage increase in the 3-per-cent range still leaves you poorer. But it’s enough to add some urgency to the Bank of Canada’s thinking about inflation and the timing of interest-rate increases.
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