2023 Inflation - Canada | General financial discussion | Discussion forum

It's true, in general the narrative is about negativity, focus on the indebted instead of the solvent, it's hard times, etc, guess that's what sells.

Many folks on here, including some who have made clear the extra income really helps, have seen their interest income soar in the last year or so, so good news!

InterestThis said

It's interesting that there has seemingly never been a story about how those who have a decent amount of cash on hand, are benefitting from the higher interest rates on things like GICs and HISA promos.  

Not so ⬆

I've seen two or three such articles in the last few months on BNN, FP, etc.

Dean

Those higher interest rates have not quite caught up to inflation, vastly increased my rent and will drastically reduce my benefits this year.

The Rock said

Because they hate savers. Spending and credit card debt drives the economy.  

Higher the interest rates, more money I have for discretionary spending. 🙂

InterestThis said
My expenses have gone up a lot less than the amount brought in from the additional interest from the higher rates. Its obviously dependent on each person's expenditure profile.
With enough of the correct investments and controlled expenses, one can stay ahead of inflation, to a point.  

Its not about “amount”. Its about %. Because in addition to expenses going up the money in your account has been devalued by the same percentage.

All in all, one can just about beat inflation right now in a TFSA account but in taxable accounts most of us are losing money in real terms.

mordko said

Its not about “amount”. Its about %. Because in addition to expenses going up the money in your account has been devalued by the same percentage.

All in all, one can just about beat inflation right now in a TFSA account but in taxable accounts most of us are losing money in real terms.  

That is wrong.
Don't agree at all, it depends on specifics. If you take new behaviors and adjust your expenses that makes a big difference.
And increasing one's own fees as well in terms of employment.
There are plenty of people who've figured out how to keep their expenses basically flat, but most people don't even want to hear about it.
And it also depends on which investments you choose, and your chosen tax bracket.
So what most people say on this subject is false, but hey, that is the way it goes.

Yes, Bill Ackman did alright.

Do you happen to eat every now and then? How about paying property taxes? Any form of transportation? Alcohol? Use health and personal care products? If you consume goods in any of these categories and a few others then you expenditure could only stay flat by you consuming less. Which is great but it still reflects that the real value of money dropped.

By the way, the price one pays for tech has not dropped “astronomically”. My cellphone costs a lot more dollars today than it did 10 years ago. Its just that when they are calculating CPI, they are accounting for the 2024 phone being better, so supposedly I bought more phone with more money.

That said, the one who is wrong is you and it has nothing to do with your personal inflation rate. If you compare by how much your earned interest went up vs expenditure in dollar terms, you are ignoring the effect of inflation on your capital. Which is shrinking in real terms. Sad but true.

The effect is more noticeable over longer periods of time. 100 year old $100 bill was equivalent in value to $1,759.56 today. Conversely, if you put $100 in a HISA 100 years ago and spent the interest, your HISA balance shrunk to less than 6% of what you used to have. In real terms.

Agree that looking at it without also considering loss of capital's purchasing power and the tax hit to your interest income is just wishful thinking.

mordko said

Its not about “amount”. Its about %. Because in addition to expenses going up the money in your account has been devalued by the same percentage.

All in all, one can just about beat inflation right now in a TFSA account but in taxable accounts most of us are losing money in real terms.  

Let's talk about hypothetical person who has a decent amount of cash on hand, enough to earn income from HISA and 1yr GICs alone. That person retired few years ago. In January 2021 he realized that his household budget balanced itself, based on that year interest rates.

Fast forward to January 2024. HISA and 1yr GIC rates doubled for many FIs, while inflation, even if it were in fact 10% annually, is not there yet.
At this moment of time income from his savings account can beat inflation.

In the long run, inflation will catch up with income from savings and that person will start feeling loss of purchasing power. You are right about devaluation.
But, at the long run, that person and we all will be dead.

If your objective is to die rich, take risks.
If that retiree objective is not to outlive his money and die with ideally just above $0 in net worth, then he could be just fine without taking risks. Even with devaluation of principal.

if you put $100 in a HISA 100 years ago and spent the interest, your HISA balance shrunk to less than 6% of what you used to have.

If/when they invent medicine extending life expectancy to 150-180 years, then that would become a real concern for retirees or about to be.