Are your finances ready for an inflation tsunami?
BNN Bloomberg
When it comes to personal finance there are things we can control and there are things that are beyond our control.
When it comes to personal finance there are things we can control and there are things that are beyond our control.
We can earn extra income, budget spending, and choose investments for retirement, but our best plans could be undermined by inflation.
Inflation has the potential to wash over everything we have accumulated like a tsunami, but there are ways to prepare and blunt the impact of whatever comes.
Most of us have already experienced inflation at grocery stores and gas pumps. However, the degree or longevity of inflation headed our way is not certain. Economists blame the disruption of the supply chain due to pandemic-induced lockdowns for pockets of inflation saying they are “transitory”, or temporary, and will work themselves out. One analogy is a snake digesting a softball. The rapid rise and fall of lumber prices is a perfect example of transitory inflation.
The Bank of Canada reassured Canadians this week that it has the monetary tools to keep inflation under control. The most effective monetary tool for most central banks is the ability to cool the economy by raising their benchmark interest rates, or lowering them again if the degree of the increase is stifling the economy.
Higher interest rates mean an increase in borrowing rates for consumers, who are currently holding record amounts of debt. Paying down debt while rates are still low provides more bang for the buck because a greater portion of those funds reduces the principal instead of channelling interest to the banks.
