Inflation. One of the most common words you hear on the radio, TV, and from your favorite realtor and mortgage broker these days.
What is Inflation?
An inflation rate is a % change in the cost of a basket of specific goods and services over a specified period (usually year over year).
The Latest Inflation Number
Let’s take, for example, the latest inflation figure of 6.90% that we saw for October 2022.
This means that the same basket of goods and services cost 6.90% more in October 2022 than in October 2021.
This is the inflation number you see all over the news headlines.
What is in this “Basket of Goods and Services”?
As of December 2022, this “basket of goods and services” consists of components from 8 major groups:
- Food;
- Shelter;
- Household operations, furnishings, and equipment;
- Clothing and footwear;
- Transportation;
- Health and personal care;
- Recreation, education, and reading;
- Alcoholic beverages, tobacco products, and recreational cannabis.
Each category has its own “weight” compared to other categories in the basket.
Weight Distribution and Complexity of Raising Interest Rates
Shelter costs take up almost 30% weight of the basket. When the Bank of Canada inadvertently increases mortgage rates and, therefore, interest payments, it simultaneously increases Shelter costs and thus pushes the inflation number higher.
Food costs are 15% weight of the basket. When the cost of Food is increased, it increases the inflation number. Various events, policies, and government regulations can affect the cost of groceries (higher gas prices, increased carbon tax, shortage of fertilizer, and higher farming costs due to government regulations).
Another category to consider is Transportation which is at almost 17% weight of the basket. When the prices of new and used cars go up due to the global chip shortage, the inflation number increases.
What To Pay Attention To
Statistics Canada releases inflation numbers monthly. The next release is on December 21, 2022, and will provide us with an update on the inflation number for November 2022.
We will see a % increase in the costs of goods and services within this specific basket compared to November 2021.
Both September and October had inflation at 6.90%. What will the information for November tell us?
The goal is to bring the inflation number down to the 2% to 3% range. Let’s hope for a lower number on December 21st and onwards!
Do you have any questions?
Reach out to our team of experienced professionals at Access My Home Equity today for a free consultation:
Email: info@accessmyhomeequity.ca
Phone: 604-362-4467
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