Canada inflation high - how can Canadians protect their budgets?

Debt insolvency firm president on the best ways to mitigate sky-high cost-of-living

Canada inflation high - how can Canadians protect their budgets?

Inflation is heading in the right direction in Canada, ticking downwards again in March, but overall annual price growth continues to put a squeeze on Canadians’ budgets across a range of sectors.

At 4.3% last month, the annual inflation rate ticked down by nearly a full percentage point from February and has declined considerably over its 39-year high last June of 8.1%.

Still, costs remain significantly elevated from the same time last year – and, alarmingly for homeowners, mortgage interest costs accounted for a big chunk of March’s price growth, spiking by 26.4% year over year.

That, according to Statistics Canada, represented “the largest yearly increase on record as Canadians continued to renew and initiate mortgages at higher interest rates.”

Food prices are also slowing but remain swollen at 9.7% higher than March 2022, while a big drop in the cost of gasoline was attributed to the unusually high prices that emerged last year in the immediate aftermath of Russia’s invasion of Ukraine.

Unsurprisingly, financial concerns continue to weigh heavily on many Canadians’ outlook, with a recent survey by insolvency firm MNP with Ipsos revealing that half of respondents believed the worst of the economic cycle was still ahead.

Forty-six percent (46%) of those surveyed said they were $200 or less away from not being able to meet their financial obligations, while 57% indicated they would face big financial trouble if interest rates rose even further.

The importance of budgeting effectively

With that in mind, what are some of the best ways Canadians can mitigate economic headwinds and help their finances survive turbulent times? Grant Bazian (pictured top), MNP’s president, told Canadian Mortgage Professional that the process should start with a simple but oft-overlooked step: setting a budget.

“Many people don’t create a budget for themselves – they just sort of wing it,” he said. “But if you actually sat down and quantified what your family brings in, that’s relatively easy to do: your pay stubs, or what’s going into your bank account from your employer. But the more difficult task is [hone in on] what you’re spending it on, and that takes a bit of willpower, discipline, diligence to quantify.

“If people literally sat down for a month and kept their receipts and looked at their bank statements and… their debit cards, just quantifying what they’re spending their money on, that would really give an insight because many people are spending more than they’re making and they’re relying upon credit to cover that shortfall.”

Is it time to cut down on unnecessary expenses?

Factoring in the annual cost of expenses such as car and home insurance, Christmas presents, and birthdays is also essential, Bazian added, in order to draw up as accurate a budget as possible and devise a realistic savings plan.

“If you can save anything, it’s a boon,” he said. “Recommendations are 10% to 20% of your paycheque – if you can save that, that’s fantastic. But people are [on] different strata of income and expenses, and anything you can save is good for a rainy day.”

In the current difficult climate, with an inflated cost-of-living and an uncertain future for the economy, it’s also a good idea to have second thoughts about expensive holidays, trips, or goods, according to Bazian. “Maybe just stick to the essentials, at least until you’re in a more comfortable situation with better savings. A lot of it is common-sense type stuff, but unfortunately that’s lost on many people,” he said.

“[These are] very fundamental protocols to go through, but they’re effective. And those are good ways to mitigate what may happen in the future with uncertainty, and probably put you and your family in a better sense of comfort, at least in terms of your financial situation.”

The Bank of Canada has introduced eight interest rate increases over the past year in an effort to tackle the surging inflation crisis, although its last two announcements have seen no change to the benchmark rate.

Its target for the annual inflation rate is 2%. The Bank expects inflation to reach the 3% mark around the middle of this year, before ticking further down and reaching its target by the end of 2024.

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