What does high inflation mean for your retirement savings?
30 January, 2023 4:25 PMIn Canada and abroad, 2022 can be summed up as the year in which nothing (or almost nothing) worked. Canadian, U.S. and international stocks got clobbered, while bond returns were nearly as bad. The classic 60/40 balanced portfolio had its worst performance since 2008.
The culprits? Stubbornly high inflation, Russia’s war in Ukraine, rapidly rising interest rates, and stock markets coming back to earth after a period of greed and excess.
The result? Inflation, as measured by the Consumer Price Index (CPI), soared to 8.1% in June 2022 and is still hovering at 6.8% six months later, taking a big bite out of Canadians’ purchasing power.
The Bank of Canada (BoC) has embarked on a series of interest rate hikes designed to squash inflation and cool the economy. All told, seven rate hikes between March and December 2022 have taken the Bank’s trendsetting overnight rate from 0.25% to 4.25%—and more increases are likely. While inflation appears to be cooling off, the BoC expects prices to remain above its 2% target through 2023 and into 2024.
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