When you prepare a long-term financial plan for your retirement or a child’s education fund, a 2 – 3% inflation rate is factored into the total. When the total amount is calculated, it seems unbelievable that costs can increase to such an extent, but that is the risk of inflation.
Risk of Inflation
On a year-by-year basis, higher prices for goods and services are absorbed into our budgets, hopefully set off by cost-of-living salary increases with barely a notice. However, as indicated by the following list, which I discovered in a community newsletter, inflation has a real impact on your purchasing power.
- 1961 – a good wage could be found at Jasper Park Lodge for $1 per hour
- 1962 – rent in Edmonton for a 2 bedroom basement suite was $35 per month, including utilities
- 1962 – you could buy 3 pounds of hamburger meat for $1
- 1963 – a babysitter cost you 35 cents a hour
- 1972 – a chocolate bar was 10 cents
- 1973 – a glass bottle of Coke set you back 35 cents (with a 2 cent deposit)
- 1978 – a monthly bus pass was $15 per month
Personally, I remember in 1976:
- Our first house – an attached townhouse-type 3 bedroom condo with basement and small back yard – cost $37,000
- I earned $12,000 per year as a full-time secretary
- We shelled out $10 for a gasoline fill up for our VW Rabbit which cost us – new- $6000
- A movie and pizza date was less than $20 (not counting babysitting)
- I could buy 10 loaves of bread for $1
- Universal Family Allowance was $16 per month for 1 child which, supposedly, was enough to cover the child’s basic expenses
So, there you have it. You know what most of these items cost 30 to 40 years later. With the exception of electronics, most items have increased by at least 500% due to inflation. The other exception is income, which hasn’t increased nearly as much as expenses on a comparison basis.
Related: Inflation Rates Aren’t As Bad As They Seem
Can you accurately calculate what your expenses will be in the long term when it’s time to retire? Not really, but it is necessary to pay attention to future forecasts and not just dismiss them as unrealistic.
