Stay cool to beat the inflationary heat

By Joyce Wayne

I don’t believe there is anyone, anywhere who wants to pay more for their groceries this month than they did the month before. But that’s what is happening in Canada as inflation reached a high of 8.1 percent in June, with food inflation rising to a hefty 8.8 percent in July. The Bank of Canada’s interest rate is at 2.5 percent – with the most significant raise in 20 years. The big banks’ prime rate is 4.7 percent.

What’s a retired person on a fixed income to do? One thing I would suggest is trying to remain calm while the indexes and rates soar. If possible, don’t panic. After an informative conversation with Jason Heath, a certified financial planner at Objective Financial Partner (one of the few flat-fee financial planning and advice services), I realized that the best option is to try to stick to a financial plan, not dwell on the inflationary prices at the check-out counter, and recognize that older Canadians remain in a privileged position compared to younger folks, for whom home buying is a much more frightening proposition than it was when we were younger.

Jason Heath is not only a financial planner. He is also an authoritative and frequent writer for Canada’s Financial Post and Money Sense magazine. When we spoke, he was incredibly generous with his time and his thoughts on inflation. Plus, he’s a very nice guy. Heath explained that the Bank of Canada’s primary responsibility is to control inflation and maintain it at a rate between 1 and 3 percent. “Higher interest rates discourage people from spending.”

Ways to beat inflation

How did we get here?

Heath’s view is that during the height of the pandemic, the government printed money and flooded the market with it. “There was lots of cheap money,” he reminds me. “Government may have over-compensated to combat the negative effects of the pandemic.” And there are other factors, the war in Ukraine being one of them.

During our discussion, we agreed that there are two things that Canadians want for themselves and their children: to own a home and to be able to provide for themselves and their families. Heath is most concerned about younger folks who’ve taken on mortgages in the last year and what will happen to them when their mortgages come up for renewal.

Heath also confirms that retirees living on a fixed income or an unindexed pension are at risk, and his ideas for getting through this inflationary period come down to some suggestions:

  1. Avoid buying convenience foods such as packaged salads. Heath suggests chopping your vegetables or fruit. It also makes the food last longer.
  2. Buy generic brands
  3. Check out company apps online that offer special deals to consumers
  4. Clip grocery coupons
  5. Cut back on ordering take-out, delivery or going to restaurants
  6. Drive less to save on gas
  7. Take a staycation rather than flying

Although we’ve become accustomed to debt and low-interest rates, Heath says, “times are changing.” For retirees, there is an upside to inflation. It’s the first time in years, we can purchase 5-years GICs at more than 5 percent. Retirees can also buy annuities at more attractive rates. As for scrimping and saving, Heath suggests that some people are better off than they think.

The Bank of Mom and Dad

When I asked Heath about helping out adult children to become the bank of mom and dad, he said, “I see people helping their children too much. Parents are overly anxious, but if mom and dad can afford to do it, it’s a huge benefit.” Yet he cautions, “Don’t give away too much money too early and take away the financial responsibility from your kids.” According to Heath, a red flag is that if the bank won’t lend your children enough money to buy a home, you should not make the difference. If you’re going to provide that assistance, it won’t come back.”

While we talked, I mentioned to Heath that I was concerned about taking a two-week vacation this summer. His response was: “One vacation isn’t going to make or break your retirement plans. After being cooped up inside for more than two years, enjoy your vacation.”

As one who lived through the wage and price controls of the 1970s and 18 percent mortgage rates on my first home, purchased in the early 1980s, Heath also assured me that we wouldn’t be experiencing anything that drastic. “Governments are much more in control of the situation than they were back then.”

I slept more soundly after talking with Jason Heath. Although he believes inflation will be around for the next few years, his suggestion of sticking to a financial plan, making minor cuts to grocery shopping and driving while continuing to live the best life you can, made more sense to me than anything else I’d heard.

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