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Understanding high inflation and how to combat it

Inflation – the rate at which prices rise over time – is a normal part of every economy. Typically, it happens so gradually that we barely notice. This is known as “price stability.”

August 2022 4 min read


 Quick tip: What is inflation?

Inflation is the rate at which the cost of products (like gas and groceries) and services (like entertainment and health care) increase over time.


But at times big increases do happen, reducing our purchasing power and leaving us worried about our finances. To ease those worries, we’re sharing three strategies you can use to combat inflation. First, it’s important to understand why it happens and how it’s tracked.

How does inflation work?

There are various factors that influence inflation, but let’s take a quick look at two of the key drivers:

  • Demand-Pull Effect – When demand for products and services outpaces supply, their prices tend to increase because people are willing to pay more for them.
  • Cost-Push Effect – When the cost to produce a product increases (for example, because its raw materials become more expensive), the price of the final product will typically rise as well.

Short-term price shifts are rarely cause for concern. But when these effects occur to a lot of different products at the same time over an extended period, the result is high inflation.

How is inflation measured?

The Consumer Price Index (CPI) is the official measure of inflation in Canada. You can think of it as a virtual shopping basket that Statistics Canada fills with around 700 products and services Canadians typically buy. These cover a variety of categories:

  • Food
  • Shelter
  • Transportation
  • Household expenses, furniture & appliances
  • Apparel
  • Medical & personal care
  • Recreation, education & leisure
  • Alcohol, tobacco & recreational cannabis

They then add up the total cost every month and track the change in prices.

3 ways to protect your finances from high inflation

  1. Reduce or consolidate debt

    During high inflation, your money doesn’t stretch as far. So it’s important to plug as many financial leaks as possible to limit strain on your finances. The biggest of these leaks is debt, particularly high interest debt. By prioritizing reducing debt, you free up funds that would otherwise have gone towards interest payments.

    Let’s look at a credit card charging 19% interest with a balance of $5,000:

However, not everyone can afford to increase their debt payments, especially when inflation is tightening budgets. That doesn’t mean you’re out of options though. Consolidating debt can also significantly reduce your interest payments.

Let’s use the same example and say you consolidate the debt into a 5-year fixed-rate loan at 5%.


 Scenario 3:

You consolidate the debt and pay $94 a month

  • It takes 5 years to pay off
  • You pay $661 in interest

As you can see, debt doesn’t have to weigh you down. Our experts can help review your situation and find solutions that really make a difference.

  1. Understand your personal inflation

    The CPI tracks a national average, but not everyone spends their money the same way. Some use public transit, so rising gas prices don’t affect them as much. Some don’t have kids, so they don’t feel the impact of higher childcare costs. As a result, your personal inflation rate may be different from the rate you see on the news.

    Reviewing your spending will help you gauge your personal rate and where price changes are hitting you hardest. That way you can pinpoint how best to adjust spending to minimize inflation’s effect on your cost of living.

 How to calculate your personal inflation rate:

  1. Collect your credit card and bank statements for a month of average spending and the same month last year (let’s say June 2022 and June 2021)
  2. Group your spending using the CPI categories outlined earlier in the blog
  3. Add up both months’ spending
  4. Subtract the total for June 2021 from the total for June 2022
  5. Divide that difference by your original total from 2021

Congrats, you’ve got your personal inflation rate! You can also do this for each individual category and your annual spending.

  1. Keep your portfolio diversified

    Sticking to your long-term investing strategy isn’t easy during times of uncertainty. With everyone discussing inflation and its potential impacts, stress is inevitable – and, with stress, comes the behavioural biases that can cloud our investing judgement. But it’s important to remember that a well-diversified portfolio has historically earned greater returns over the long term than either trying to time the market or keeping money in a savings account.

It's natural to be concerned during high inflation. What does it mean for your finances? How will it impact your plans? The best thing you can do at times like these is talk to an expert. Our experienced advisors will help you plug any financial leaks and maximize any opportunities to protect your finances while things stabilize.