Navigating record inflation and why it’s happening

Canada’s inflation rate hit record highs as the calendar year turned to 2022, with the last time national inflation approaching such rates coming in 1991.

As Canadians attempt to navigate the affects of such, financial experts are offering advice.

“Inflation is when the cost of goods is exceeding wage growth,” Sheri Thiel, credit counsellor with Money Mentors, told the News. “Unfortunately, right now, our annual inflation rate as of Jan. 17 in Canada is at 4.9 per cent. Wage growth has been lower for many people and is only showing two per cent. So essentially, the cost of living and the cost of basic necessities is going up at a higher rate than our incomes are right now.”

Thiel and her associates at Money Mentors have seen the affects increased inflation rates have had on clients.

“It has a huge impact on people,” said Thiel. “Canadians are showing record-low confidence levels when it comes to personal finances and, especially, their debt-repayment abilities. Here in Alberta, the number of Albertans concerned about their personal debt has jumped to the highest level amongst other provinces.

“We’ve got 50 per cent of Albertans concerned about their current level of debt and just slightly fewer are confident they can comfortably cover living expenses over the next year without going into debt.”

Carolyn Main, instructor at Medicine Hat College’s School of Business and Continuing Studies, says the rising rate of inflation can be attributed to a number of factors, including disruptions in the global supply chain due to the pandemic, increased demand as businesses begin to open again, among others.

“We can even consider food costs as a prime example,” Main told the News. “There’s a rising cost for farmers to grow food, there’s environmental factors in play like droughts and storms, there’s COVID, then you add on top of that the supply chain issues. So, if growing food is more expensive, transporting food is more expensive and people are out there maybe purchasing a little bit more than they were before … then food (becomes) expensive.”

While the effects of inflation can cause financial stress for individuals and families, Main and Thiel say steps can be taken to help improve personal finances.

“I think what’s really key is creating a personal budget,” said Main. “Even making small changes can make a really big difference for people, so let’s say you stop and get a coffee and muffin on your way to work every day. You think

‘Well, it’s three dollars,’ but three dollars a day can add up to quite a bit over the course of a month. So, you need to really sit down and think about how you’re spending your discretionary income.”

To create a budget, Main recommends at the start of each month, writing out monthly income then deducting necessary expenses like housing, food and transportation. Then, Main says a small portion of the remaining sum can be used for discretionary purchases, like morning coffee, movie theatre tickets or take-out. The remaining amount can be put in savings.

If not confident in setting a personal budget alone, Thiel recommends speaking with a credit counsellor.

“It’s a chance for people to reflect on financial priorities and goals, she said.

She also recommends accessing resources and courses like those available free on Money Mentors’ website or apps which track expenditures.

“There is no shame,” said Thiel. “Knowledge about finances, debt and credit, as well as having a plan, is so empowering for people.”