Weekend Reading: Personal Inflation Rate Edition

Inflation. It’s on everyone’s mind as the cost of goods and services have been on the rise since early 2021. 

The Consumer Price Index (CPI) measures changes in the cost of a fixed basket of goods over time, including food, shelter, transportation, furniture, clothing, and recreation.

While inflation may have peaked in June of this year (8.1% year-over-year increase in CPI), prices are still stubbornly high and may take another year or so to come back down to the target range of 1% to 3%.

One problem with the headline inflation number is it may not accurately represent your personal rate of inflation. After all, no one is an average. We all experience a different rate of inflation based on our spending preferences and age and stage of life.

Statistics Canada has a personal inflation calculator to show how your experience with inflation differs from the average Canadian household. It’s a useful exercise to go through to get an idea of how inflation has impacted you over the past year.

If you’re a personal finance nerd like me you probably have all the data you need – your tracked expenses by category over the past year.

My Personal Inflation Rate

I was curious to see what our own personal inflation rate has been for the past year or so. I used the Stats Canada calculator and the results were pretty much what I expected.

When inflation started climbing in early 2021 our personal inflation rate trailed the average Canadian household. We don’t spend much on gasoline. We didn’t buy a car. We didn’t have any big renovation costs or spend on electronics. Our mortgage interest was also below 2%.

Fast forward to the summer of 2022 and our personal inflation rate caught up and surpassed the national average. That’s mostly because travel got expensive and interest rates spiked. 

We expect our personal inflation rate will come down over time but will still remain higher than the national average due to carrying our builder mortgage and line of credit into the first half of 2023. 

Indeed, it turns out inflation may not yet have peaked for us. 

Readers: have you tried the personal inflation calculator? Is your personal inflation rate higher or lower than the national average?

This Week’s Recap:

On Wednesday I wrote about my financial goals for 2023. Check out the article if you missed it and read the comments if you’re looking for some inspiration / motivation from fellow readers.

I plan to take the last two weeks of December off (more or less) to get ready for Christmas and enjoy the holiday season. 

We were so fortunate to be able to take about nine weeks off for travel, and another two weeks off to end the year. That’s the equivalent of taking 50-55 vacation days (depending on where stat holidays fall), which handily beats the 22 vacation days I used to get at my day job!

Best of all, we still managed to exceed our business revenue goals thanks to continued interest in my fee-only financial planning service and new freelance writing opportunities.

Thanks to all of our clients for the interest and engagement this year. Even though 2022 was a challenging year in many respects, a solid financial plan can help navigate the choppy waters and keep you focused on the big picture so you can achieve your goals.

Weekend Reading:

Rob Carrick explains why RBC buying HSBC is a loss for the banking public. HSBC routinely offered mortgage rates 20 basis points below the big banks’ rates.

Jason Heath says it’s time for borrowers to accept the new normal of higher rates and plan accordingly.

If you have children attending post-secondary December is the time to check your RESP withdrawal strategy to help cut any taxes.

Should you collect CPP and OAS while working in your 60s? Here’s what you need to know about applying for your government pensions.

Dimensional founder and Executive Chairman David Booth explains why you time the market at your peril.

PWL Capital’s Justin Bender looks at how currency conversion fees might impact your decision on which ETF to invest in:

Andrew Hallam shows how over a period of 35 years, index fund investors earn 100 percent more money than those who buy actively managed funds.

Morningstar’s Christine Benz explains the bucket approach to building a retirement portfolio:

1) Income from cash holdings in Bucket 1.

2) Income from bonds and dividend-paying stocks from Buckets 2 and possibly even 3. (Income-focused investors might decide that their bucket maintenance starts and stops with these distributions.)

3) Rebalancing proceeds from Buckets 2 and especially 3.

4) Principal withdrawals from Bucket 2, provided the above methods have been exhausted. Such a scenario would tend to be most likely in a market environment like 2022, when bonds and equities slumped at the same time, thereby making it an inopportune time to unload equities.

The brilliant Morgan Housel shares five short stories about expectations.

Finally, the Monevator blog argues that if 2022 taught you never to own bonds, you learned the wrong lesson.

Have a great weekend, everyone!