Canadian Inflation: Adjusting to the New Reality of High Prices

For some years now, the majority of Canadians have been struggling to feed their families decently. While high prices seem here to stay, what can you do to prevent them from wreaking havoc on your life?

The cost of living

How do we measure the cost of living? By looking at the prices of goods and services as well as basic human necessities such as food, housing, transportation, energy, furniture, clothing, recreation, and other items. The Consumer Price Index (CPI) is the most common system to gauge inflation. It is used by the Bank of Canada and Statistics Canada to measure the cost of living. As you may have noticed, the cost of all these things has gone up from 2021 to 2024.

How does inflation affect the economy?

First off, let’s establish why prices go up and down in the first place. According to the Bank of Canada, prices tend to go up when the demand for goods and services is more than the economy supplies. The opposite happens when the economy supplies more goods and services than people want or need.

Essentially, a balance between society’s demand for things and economic production is necessary. An imbalance leads to far-reaching economic effects. Picture the beginning of the pandemic or the Great Recession of 2008.

Inflation is not all bad. A low and stable inflation rate helps money keep its value. Stability gives consumers the power to plan for future expenses and budget their money. A modest, steady inflation rate basically makes it easier for everyone to evaluate long-term financial growth.

On the flipside, a high inflation rate can change how we shop, budget, invest and travel in a relatively short amount of time. High inflation significantly reduces consumer purchasing power. That means that our money loses value. The number on the dollar bill doesn’t change, but what that dollar buys you does.

What behaviors help people live with higher prices?

There are a number of ways to improve your financial situation in this period following the rapid and abrupt cost increases.

Reduce everyday expenses by evaluating your consumption

To do so effectively, start by reviewing the increased cost of the products and energy you use the most. This list of items will most likely include food, clothes, transportation, water, and gasoline. It’s easiest to review at least three month’s worth of purchases or bills for each of these items to really get a feel for just how much you’re spending, month-over-month.

For example, if you think you need a new car, think again. The average cost of new car ownership is very high. Can you use a bike for the majority of your trips? Should you opt for a used car? Once you know just how much money you’re shelling out on consumption, it makes it easier to reassess your budget.

Reassess your budget

If we’re all being honest with ourselves, is reworking a budget fun to do? Not exactly, unless you’re prioritizing a new goal or close to hitting one. If you’re not looking forward to reassessing your budget due to Canadian inflation, it’s most likely because you’re unexcited about cutting your budget for something in particular.

Thankfully, sorting out your budget is made simple with free budgeting apps like Hardbacon. Hardbacon is designed specifically for mobile and you can connect and manage all of your accounts through its easy-to-use interface. It takes budgeting to the next level because it also tracks your investments and helps you plan your goals. Goals like getting a bigger emergency fund or saving for a vacation to help you forget about inflation.

Buy in advance

On the topics of budgeting and spending, it might be a good idea to buy something you want or need in advance. Remember: if it’s not in the budget, don’t buy it. But if you’ve got the cash, get ahead of the supply shortage and look for the best deal you can find.

In order to get the best deal on items you want or need, you can plan to buy before you need them as well. This precautionary step allows you to avoid impulse buys when you’re in desperate need for something. You can coupon it, share the cost with friends, or use a cash back app.

For more expensive items that take a bigger chunk out of your budget, refer to resources that inform you of the best times to buy. Take for example, TVs. You want to hit the sweet spot of the market between fall and early winter, when holiday sales begin and the release of new models in January comes around. You can also buy discounted holiday items this year and use them next year. Yes, buy those Christmas lights the day after New Years. Want a barbecue? Buy it at the end of summer and use it next year.

Negotiate a raise or earn more money with a side hustle

Another grim factor of Canadian inflation is that the more things cost, the more money we have to try and make. That said, if inflation remains the same or goes up even higher, you might actually see a decrease in pay. Don’t freak out. This doesn’t mean your job will pay you less. As we mentioned earlier in this article, your money does not hold the same value the higher rates get. Thankfully, there’s a solution to this problem: earning a salary increase.

Nowadays, experts recommend asking for a cost-of-living salary increase. This should be at least 6 to 10 per cent more than your current income for those who do not work in a private sector. This will allow you to stay even or come out a little ahead at the end of the year. You can also earn more money with a side hustle. People are making a lot of money on sites like Upwork and Fiverr in their spare time.

Make room in your budget for investing

Once you’ve got everything else under control, it goes without saying at this point: make room in your budget to invest. You can also carve out more of your budget to invest or dedicate more of your budget to diversifying your investment portfolio. In a time when everything else seems to threaten the growth of your money, investing it in emerging markets is just another way to get ahead.

Anastasia Barbuzzi is a freelance journalist as well as the founder and host of $HMONEY: a judgement-free zone for millennial women to learn about personal finance and dismantle the money taboo. Her podcast, $HMONEY Radio, is available wherever you listen to your favourite shows.