Inflation is one of the major subjects in the economic conditions of Canada, except for the restricted supply of households. However, it is not always bad.
Although the Bank of Canada has established a target of 2 percent inflation for stabilizing the conditions after the pandemic, Statistics Canada revealed that inflation touched 4.1% on a year-over-year basis in August — the highest since 2003. The current situation shows it pretty good: prices of almost everything go up, unfortunately, including groceries and petrol.
It may all seem frightening, but in certain situations — it might be beneficial for you. Sometimes Inflation can be your friend, and sometimes — there are no reasons to get scared. Here’s why.
Inflation Can Increase the Returns of Certain Stocks
When inflation increases, several equities grow in value. However, not each one of the answers in a similar manner.
The latest evidence by BMO Capital Markets shows that stocks of retailing, beverages, food, and technology businesses seem to decrease in their value when prices increase.
While many in different industries — such as mining, oil and gas, metals, power equipment, and supplies — have witnessed rising stock values.
You can get the complete information of your portfolio and the effects of inflation on its returns with the help of a stockbroker or investment advisor. Many of them have seen even worse inflation rates.
Inflation Does Not Necessarily Imply Increased Rates of Mortgage
Since March 2020, 0.25% is the standard interest rate that the Bank of Canada has held, and it also pledged to maintain it until Canada achieves persistent inflation of 2%.
However, as inflation now nearly doubles, the bank doesn’t need to boost its so-called overnight rate that may raise flexible mortgage payments.
Usually, higher inflation might be addressed by higher interest rates. However, the Bank of Canada has proposed that inflation is only transitory now.
Your Salary Could be Increased
Of course, it doesn’t work for everyone. The sad truth is — only SOME companies feel obliged to raise salaries if inflation rises rapidly so that staff members do not quit for other high-paying jobs to accommodate growing spending.
In case inflation raises the expenses and reduces your company’s revenues, salary increases that match growing prices might not even be straightforward.
However, inflation can also help the business to increase the prices of all its products and services. This can allow the company to offer salary raises to the employees, but it might not be up to the level of inflation.
Canada is now in the middle of a surge in recruiting: it might be a good moment to discover who hires.
The Value of Debt Might Be Reduced
The state of the world economy without lending would be completely different—especially since several people and countries have been saved only due to debts during the pandemic.
Inflation enables to lessen the pitfall whenever it comes to repaying this loan.
The exact sum would still be due; it doesn’t just magically disappear. However, the burden of the total loan is decreased when the worth of money is lowered. It’s especially beneficial when your income is not affected by inflation (or, at least, affected by one with a slower rate).
It’s Beneficial for Property Owners and Landlords
You’ve got fixed-rate mortgages just like every homeowner in Canada. Even during periods of increasing inflation, the mortgage interest rate and repayments will indeed stay consistent.
Your home’s worth, however, may be enhanced due to rising inflation.
It might not be notable in your everyday life, particularly if you pay extra for furnishings or refurbishment. Still, this inflation might benefit you if you intend to sell the house or renew the mortgage in the coming years.
Inflation Might Help Canada to Recover from Covid-19
FInally — even though this one may appear irrational — it’s probably the best thing inflation can do by this moment.
Why do people increase their spending— and thereby spur economic growth — on increased prices?
Prices may continue to rise because of a little thing called uncertainty. It’s believed to encourage customers and companies to purchase things that would otherwise be postponed.
The economic comeback of Canada will depend primarily on domestic demand; thus, any boost inflation shows would be appreciated. More expenditure means more companies are back on their feet. Once this happens, recruitment must rise as well.