You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.
ROB: Have you noticed you’re paying a lot more for just about everything these days? Why is it happening and how long will it last?
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ROMA: On today’s episode, we’re talking about something pretty much everyone has on their minds right now. Inflation, if you drive a car, if you buy groceries, if you pay for shelter, you’ve felt the pinch. And as we emerge from this pandemic, how is it impacting your personal or household financial planning?
ROB: Welcome to Stress Test, a podcast about personal finance for Gen Z and Millennials. I’m Rob Carrick, personal finance columnist at The Globe and Mail.
ROMA: And I’m Rome Luciw, personal finance editor at The Globe. So Rob, inflation, we’ve all heard the word. But before we dig into this, let’s start with the definition of what this really means.
ROB: Let’s answer that question using the most recent inflation rate 4.7 per cent for October. What that means is that a basket of goods and services that the typical person uses in their life costs of 4.7 percent more than it did 12 months ago. Inflation means things costing more. There’s like an ambient level of inflation in the world. Over the past two or three decades, it’s been about 1.8, 2 per cent. That’s kind of normal, and we’re all used to it, and it was all pretty much fine. Now we’re more than double that, and it’s a bit of a shock to our system. You know, the last big inflationary spike was in the 1980s. We had double digit inflation. Do you remember that?
ROMA: I wasn’t paying for things in the 80s, but I certainly remember my parents being very stressed about that. I have a visual of my father and mother sitting at the kitchen table and worrying about what was going to be happening with the spending. They had four kids. And I remember watching them thinking they’re very anxious about something. Now, some of our youngest readers are likely not paying for things yet or have no context in terms of, oh, I was paying this much for groceries five years ago or two years ago, and now I’m paying this much. So this is an interesting sort of introduction to this idea that prices can really pop like this.
ROB: I think that for older Millennials and certainly Gen Xers and Baby Boomers, this is the worst inflation we’ve seen in decades and decades. It’s almost like this has come out of the closet and inflation is a monster. It can really wreck your finances because so far in Canada, wages have not been keeping up with inflation. So the cost of living is rising, rising and your purchasing power is shrinking because your income is rising, but not enough to counteract the rising prices.
ROMA: Now that’s right. During the pandemic, we had a lot of people curtail those spending. They were at home. Nobody was buying things. Supply demand is out of whack. I imagine where a lot of our younger listeners are seeing and feeling this is if they’re going out to eat at restaurants or if they’re getting takeout. Those prices have risen and I’ve noticed that for sure.
ROB: You know, there’s really no escape from inflation. The real question is how much longer will it last? There’s a lot of uncertainty about that, and we’ll dig into that in this episode.
ROMA: Today, we’ll hear from two millennials who are feeling the pinch of rising everyday costs. How are they adjusting their personal finances to cope? That’s up next. PRE-ROLL AD: This podcast is brought to you by CPP Investments. Take comfort knowing the Canada Pension Plan Fund will be there for you. We invest to help ensure the CPP fund remains resilient over the long term, sustainable and secure for millions of Canadians. Learn more at CPP Investments Dotcom.
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ROB: One of the easiest ways to keep tabs on your finances is to track them. And we found someone who does that meticulously. Down to every box of gluten free crackers they buy.
ADELE: Hi, my name is Adele. I am thirty three. I’m a lifelong Torontonian. I grew up in Parkdale and now I live in Seaton Village Christie Pitts. I work in television.
ROB: Even though Adele’s always been responsible with her money, she didn’t start recording her grocery bills until the beginning of the pandemic. One of her budgeting tricks pre-COVID was to use cash. But in the pandemic, stores weren’t accepting that anymore.
ADELE: Nobody was taking cash anymore. So I said, OK, if I’m going to use my card and everything, I’m going to have to track it. And for sure, honestly, to just kind of get a sense of control over what was going on. I was very lucky that I didn’t lose my job and I was able to quickly shift working from home. So I did have a steady source of income, but I wanted to start tracking my expenses just to sort of get a handle on like, OK, I’m OK, I’m not spending a ton of money on certain things, and it’s been really helpful. And I also started tracking the best prices on certain grocery items that I buy. And I was able to go back and look at the list I made in the summer of 2020 and look at my most recent grocery bill and really notice the difference on certain things.
ROB: COVID wasn’t the only thing that changed the way Adele lived. Her partner was diagnosed with Celiac disease and was so sick that he had to step away from his work for a while. This made her the sole earner in the household, so the couple also had to rethink how they shopped and what they ate.
ADELE: I started tracking prices of the groceries that I knew I’d be needing a lot in June, July of 2020, because suddenly with my partner’s condition, we knew we’d have to buy completely different groceries. So it was originally just a way to price compare. The best price I found, for example, the gluten free all purpose flour that I do all of our baking with, and that’s good for making soups, you know, adding it to different recipes. The cheapest price I found for our little bag was $5.50. I just checked from the same place. It is now $6.50 which is 18 per cent. The brown rice flour that I used in some of our baked goods, used to be $4.50. Now it’s $5.73, so that’s 27 per cent. We are both vegetarians, which can be nice. You save money. In some ways, you have to spend more in other ways. We found one Celiac safe ground beef substitute that we make tacos and burritos, pasta sauce with. That used to cost $4.50 a bag and now it’s $5.27 which is a 17 per cent increase. Eggs. Because we eat eggs, it’s a good staple for us. You use a lot of eggs in gluten free baking to hold things together. I used to get 18 eggs for $5.50. Now, 18 eggs are $6.30, which, you know, that’s 80 cents. It’s not a big deal, but that is 14 and a half per cent.
ROB: To find the best pricing for produce, Adele checks out her neighbourhood fruit markets instead of the big box stores.
ADELE: We are again so lucky to live downtown where there’s these amazing fruit markets. I grew up near Roncesvalles, and that was like where you went to get your produce. You do not go to the grocery store. You checked out every single fruit market on the street and there’d be like six of them in five blocks and you’d figure out the best price. So downtown there are some really great little fruit stands and I tend to be really flexible. I’ll make my meal plan for the week, but I’ll put OK, I’m just going to have fruit as a snack this week and then, oh, they have grapes on sale. I will get grapes or I’ll put, OK, Friday night dinner. I’m going to make this nice dish and I’ll have some roasted vegetables, but I don’t know which vegetables. And then I see, Oh, they have green beans, but they don’t have brussel sprouts. So I’m going to do that. Or if, OK, I’m going to make this recipe that has kale. So I’ll buy, I know I’ll have to buy a big head of kale, but then I’m only going to use half of it. So now I need to pick another recipe this week that has kale in it.
ROB: As much as she can save a little here and there. Adele’s household now needs to buy specialty foods that are packaged, sealed and certified as gluten free. The cost is more than she anticipated.
ADELE: One of the best ways I’ve been able to handle like, OK, we have to buy some more expensive baking flours. We have to buy more expensive crackers is being able to buy it in bulk. Bumming off of my mom’s Costco membership has been helpful, but again, that’s the privilege we have enough income that we can buy a month’s worth of crackers in advance, all in one go and overall save money. And not everybody can do that.
ROB: Maybe not intentionally, but Adele and her partner have been able to cut down on the cost of going out to eat.
ADELE: It also means we don’t go out to eat as much at all anymore. Not just because of the cost, but a lot of it is we don’t go out to eat as much anymore because there’s very few restaurants that are safe and the ones that are safe for someone with Celiac disease are usually more expensive, so that has been kind of even a go. Even just like getting a birthday cake for someone’s birthday, you can’t get the birthday cake at the cheap Loblaws cake. You have to get the cake from the specialty gluten free store. Just as delicious, but costs about twice as much.
ROB: There has been one silver lining through all of this.
ADELE: I have noticed, though, that the gluten free pasta and a lot of the stuff we like that hasn’t been affected by inflation. It’s always more expensive, but it’s not more expensive now than it was last year for certain things.
ROB: As a former freelancer, Adele is used to keeping an eye on what she’s spending and having a plan for saving. Her mum is a financial planner and taught her how to budget early on.
ADELE: Yeah, I always aim to save the same amount of money, but I have noticed the last few months when I finish my budget at the end of the month and I look at what I spent, there have for sure been a few months this year where I’ve gone a bit over and gone, OK, well, that’s another $80, $100 I can’t put away in savings, but that’s fine. So I’m proud that I have been able to keep continually adding to my savings every month. But for sure, the last few months I’ve noticed I haven’t been able to add as much, which is I know such a privileged problem to have compared to a lot of people are dealing with. But I’ve definitely noticed it there that I’ve had to cut back on how much I can save.
ROB: Even though Adele wants to support her local stores, it’s just not in her budget.
ADELE: So if it’s something we don’t necessarily need, then we’re not going to buy it. And that sucks. And I feel bad for the small businesses that are struggling, but I can’t afford to go out to a fancy restaurant. We don’t buy expensive alcohol, we don’t drink that much because it’s just not within our price range. It’s not within our reach when the cost of everything else is going up. Even for people like us who are stable and who, we’re OK. And I’m very far from being evicted from my home because I can’t afford rent and I’m very far from needing to go to a food bank, thank goodness. But that just means like, OK, well, all the other things are just going to fall off the wayside, and that’s fine for me, and I can live without getting a manicure. But I feel bad for the little nail place down the street that I like and I can’t afford to go there. [MUSIC TRANSITION]
ROB: What I’m noticing out there is a lot of the local businesses are really busy. People are spending a lot and I wonder how they’re managing it with inflation? I wonder if some cuts in spending are going to have to come as we get used to a more open economy and more spending opportunities and inflation keeps crunching our budgets.
ROMA: What I’m seeing is people picking and choosing where and how they’re spending their money, very similar to what Adele is describing. Maybe you are eating out less and you’re choosing to spend on other things, but that’s the kind of give and take that happens as we readjust back to a regular spending pattern. I also have really found that online shopping and buying things that way, it makes it much easier to compare prices, and it’s an easy way to become organised about what you’re buying. So pre-pandemic, I would go to the grocery store and we would be throwing things into a grocery cart, and it was really never that organised. But buying online, which is something I really started to do when the shutdowns happened, has allowed me to price, compare and notice when things are on sale and really helps me think about like, do we really need to be buying this? I know this product is that much cheaper. So it’s kind of happened almost naturally for me through the online shopping process because of the pandemic.
ROMA: After the break, we’ll hear from someone in Calgary who didn’t budget heavily before the pandemic. Now he’s cutting costs so he can buy furniture and make mortgage payments on his new home.
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ROMA: Ahh...a new house, a fresh chapter in life. Obviously, you’ll need furniture to make your home look beautiful, but not so fast for Connor and his girlfriend. They’ve noticed those furnishings are almost twice as expensive as they were before.
CONNOR: So my name is Connor and I’m from Calgary, and I was born and raised in Calgary. I’m 31-years-old and I’m an investment advisor. So we had moved into a new duplex here in Calgary, and most of the materials have been bought I think before the main increase in inflation for some of the prices, but we had to do certain add ons and we needed a couple of new doors and then we had to get a couple of appliances that were not already taken care of when we moved in here. And for instance, just a basic wood slab door is now $700 they’re quoting us. And they had got them for about $350 or $400 when the house was originally being built. So that was a little bit of a slap in the face when we found out some of the pricing had changed that significantly within a couple of months. ROMA: Even with a steep price tag, the couple decided to buy the last missing door. I mean, you kind of need doors.
CONNOR: We did end up buying this door. It was a bit of back and forth arguing, but unfortunately there was really not much of a substitute. And that was either we’re going to have one door that just does not match the rest of our home or we had to buck up and get this door. So I guess we’re going to have to try and cut some costs elsewhere because we did go ahead with the order. With the lag times now, I think the door is still going to be about six weeks or so and we’re paying the inflated prices. So it’s a bit of a frustrating process.
ROMA: OK. So yes, they spent the money on the door, but with costs adding up, Connor and his girlfriend decided to get some hand-me-down furniture, like a couch from friends instead of the leather one they’ve always wanted.
CONNOR: So we’ve already made a sacrifice on some of the aesthetically based items in our home. We wanted to get a nice dining table, but now we have no dining table and we shifted from looking at furniture stores and flyers to now looking at Facebook Marketplace. We’re certainly looking at cheaper options for the rest of the furnishings of the house. So absolutely it’s I guess a large part of this inflation is pushing back some of those items that aren’t essentials and are more of the wants in our lives. So we’ve certainly put some things on the back burner.
ROMA: When they recently looked for appliances, Conner noticed a big jump in prices.
CONNOR: I don’t remember the exact cost, but I know that when we looked again and we had to make a few substitutions that I think some of the prices were up 15 to 20 per cent already, just on some of the on some of our electronics and our, you know, the fridge and dishwasher, things like that were quite significantly up. So that was a little bit alarming for us. So, you know, we’ve had to make a couple adjustments for our home and for our budget to make sure this all worked for us.
ROMA: Connor’s also noticing inflation when he buys gas.
CONNOR: You know, I used to pay around $45 somewhere in the 40 to 45 dollar range for a full tank. And I have paid as much as 60 or even over $60 in the last couple of months. You know, that’s actually one area that I’m pretty conscious about trying to eliminate driving when I don’t have to anymore. So I’ve been out on the bike more, walking to places, you know any close grocery trips and things like that.
ROMA: As foodies, the couple isn’t looking to give up their wine or dinners out with friends, at least not completely. Especially after being home for most of the pandemic.
CONNOR: We both just are social creatures, and we like to hang out with our friends and we like to meet people and be around people, so it’s hard for us to cut back too much on going out because that’s just something that makes us happy. But within that, yeah. Like I said, you know, just cutting down, perhaps the alcoholic drinks are quite expensive. The wines, while we’re going out, maybe not getting the appetizers, the desserts. Maybe not, you know, and turning down some of the invites that we have from friends, which we just always try to try to pretty much go to all of them. But, you know, cutting down a little bit on the numbers and then we’re just shifting to a little bit cheaper options within our lifestyle.
ROMA: The couple clearly likes to enjoy their life. But with inflation rising, they’re trying to be more proactive about how they save.
CONNOR: I see us as being fairly comfortable, but if either of us lost our job and we’re not able to pick something up within a reasonable amount of time, maybe six months, it would definitely be concerning. I don’t know that we’d be able to make all of our regular payments. Or should I say, we could probably cover just our absolute needs costs, but we may be eating Kraft dinner five times a week.
ROMA: One way they’ve gone back to saving is resuming monthly contributions to their TFSAs and RRSPs. Connor and his girlfriend paused those for a while since other costs were creeping up.
CONNOR: You know what, she stopped her savings plans for about the last six months because of some of these housing expenses that we’ve had. And we’ve just got to the point where we’ve paid most of the house costs that are involved in that we have to finish our place with. So she just started saving again, which was refreshing to know that that is possible. [MUSIC TRANSITION]
ROB: I think they’ve got a really good handle on things, this couple. They’ve paid their housing expenses, they’ve made some adjustments and pulled back a little bit on spending and now they’re resuming saving. I think they’re a textbook example of how to roll with the punches.
ROMA: It’s personal finance 101 at work. They’re doing a great job. You know, if you have higher expenses in one area, it’s OK to pause things like TFSA and RRSP contributions. You cannot do it all. As long as you know that you need to make that up. And once you’ve started paying off that other debt, you go back to saving for the long term. It’s really a job well done. [MUSIC TRANSITION] ROMA: So we’ve heard how the daily lives of Canadians are being impacted by the rising costs of living. But how long is it going to last? I spoke with our colleague, the Globe and Mail’s Economic Columnist David Parkinson. Here’s part of our conversation. ROMA: So, Dave, it seems like everyone’s talking about inflation these days. Why are people so worked up about this?
DAVE: Well, I think actually some of it is really a testament to how well we have controlled inflation over the last couple of decades. I mean, anybody who is of a certain age, I guess, can remember that this used to be a chronic problem through the 70s, well into the 80s. You know, we were talking about double digit annual inflation rates pretty regularly. You know, we really cracked down policy wise on reining in those inflationary pressures. Changing inflation expectations was a big part of it and that a lot of that came to the Bank of Canada and other central banks around the world sort of getting together and saying, this is what we’re going to do. We are going to maintain low stable inflation and we’re going to defend that with interest rates. So we’ve had a long period, sort of 20, 25 years where we’ve been able to control inflation for the most part around in that sort of one to three per cent range. Now all of a sudden, we’re, you know, pushing five per cent and it’s alarming because we’ve just never really lived through this.
ROMA: Right. So everyone has noticed the rising cost of gas. Everyone’s noticed they’re paying more for food. What are some of the things that are not going up?
DAVE: Yeah. And again, you know, there’s some things like, you know, home renovations became a very big thing during this recovery and during this lockdown. People were living at home a lot more, obviously staying at home and starting to see things that they could spend their money on when they couldn’t spend their money on travel. But yeah, when you think look at things like travel tours, the prices of travel tours have come down. Car insurance, we don’t drive that much. A lot of people were able to get to renegotiate their car insurance basically because they weren’t driving. So those prices have come down. Public transit prices have come down. People might be interested to know the price of wine hasn’t gone anywhere. The price of recreational cannabis has come well down during the pandemic. So, yeah, some of these things, cell phone service prices have come down. Don’t ask me why, but they have. Clothing, clothing and footwear is another one. We’re not going out buying stuff to go to the office the way we used to or, you know to go to work places and the price of those have come down as well. So, you know, this is not all an upward movement, but again, the things that have gone up, a lot of them have gone up a lot and we’ve really noticed sort of those everyday things like gas and food, as well as some of those like big, big purchases like cars and houses obviously. You know, those are the kinds of things that really stick out in people’s minds.
ROMA: OK, let’s talk a little bit about what’s causing this rapid blimp in prices.
DAVE: Well, and a lot of it is, you know, as I said again, it’s been a very unusual recession. The pandemic is kind of a unique situation in terms of stopping a global economy and then restarting it. And it has not restarted the way maybe a lot of people anticipated. In particular, there has been very high demand, not just in Canada but around the world for goods, for consumer goods. Again, because we can’t travel, we’ve got to spend our money on something. So the demand for goods has gone up as the recovery is, as has happened and things have reopened, people have been more willing to take those risks and spend that money. At the same time, there’s still a lot of restraints on in lot of markets, including the ones that produce a lot of our goods. A lot of the Asian markets that where we get a lot of consumer goods in particular, there are still constraints on manufacturing, on shipping, on border controls that slow down the whole process. So we’ve really seen the supply of goods restrained while the demand of goods has bounced back in a big hurry. And now there’s a big mismatch there. People want stuff now. They can’t get it now. Supplies aren’t there. And so the prices start to work their way up pretty quickly.
ROMA: OK, so where are we at this stage? Like where we were clearly working our way through this. How much longer are we going to put up with this?
DAVE: We’re pretty close to the peak. People could be wrong about this, but the forecasters figure that, you know, we’re starting to see improvements in some of these supply chains. Not all of them, but some of them. We’re starting to see them start to catch up to demand. So we’re going to see these price pressures because they take a while to completely sink in along the entire supply chain. But we’re going to see these probably start to peak around the end of the year, maybe early into 2022. Six months from now, maybe nine months at the most. We could easily be back to inflation that looks the way it’s looked for most of our, you know, most of the last 10, 15, 20 years.
ROMA: OK, so my next question has to do with wages. We’ve seen these huge increases in prices, at least in some areas. Have wages kept pace with that?
DAVE: They haven’t. There’s evidence in the United States that wages are starting to pick up as a response to the inflation numbers. Now, U.S. inflation numbers are higher than ours. They’re also a little bit further along the recovery than we are. You know, they didn’t have as severe lockdowns, and so they were able to get going a little sooner. It’s actually the kind of thing that policy people at the Bank of Canada and you know, that’s the kind of thing they actually worry about because then inflation starts becoming entrenched. I mean, obviously from an individual standpoint, I’d love to see my wages keep up with inflation. And when inflation surges, my instinct is to want a five percent wage increase to make up for the five percent increase that I saw in my costs. But if everybody does that now we’ve got an extra five percent wage inflation built into the broader economy, and that’s when you start to see inflation become sticky. So there’s actually a, there’s a bit of a it’s actually a fairly good news story in Canada that wages at this point haven’t kept up because it means that there’s not that additional wage pressure that’s going to push prices from producers up in addition to the pressures we’re seeing from other things.
ROMA: Yeah, sure isn’t going to be comforting to our listeners though.
DAVE: No, it doesn’t feel good to lose some money to inflation. But yeah, I mean, in the long run, you know, sort of keeping calm about that and recognising even if it’s a temporary thing that lasts a year rather than a couple of months, it’s still temporary. It will go away and we will see, you know, those pressures come off and our wages will catch up.
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ROB: What strikes me from hearing from our real people in this episode is that inflation is all about making adjustments. It’s all about trying to make do with less because you’re purchasing power is declining.
ROMA: That’s right. It seems like, you know, basic personal finance. You adjust what you have going out based on how much you have to spend. And you know, this is a really smart way to deal with your money. Lots of lessons to take away from this. Rob, what’s your sense of how long inflation’s going to keep squeezing people?
ROB: I don’t have a clear view whether it’s going to be one year or two years, 18 months, but I do feel like it’s going to be with us for a while. And when it starts to ease, it’s going to take a while to get back to more normal levels. So I’m thinking, you know, I think we’re going to see inflation around for this Christmas and very possibly Christmas 2022 as well.
ROMA: One of the things that I feel is really helpful after going through this episode, hearing people’s stories and thinking a bit about some of the changes that people are making is that there are things that you can do to make up for that inflation bite. And we’re going to go into some of these with the takeaways.
ROB: One. Try apps for saving on groceries and other purchases. For example, Flipp and Salewhale show you weekly flyers from local retailers. Two. Where possible, try to postpone buying items that are surging in price. Can you squeeze a little more use out of your ageing car, your couch or your stove? Three. Pay down debt. Making smaller payments on debt every month helps free up cash flow to cover rising prices. And four, ask for a raise. Employers are more open than they have been in a long time to giving employees raises and bonuses. Ask for yours!
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ROMA: Thank you for listening to Stress Test. This show was produced by Amy Chyan and Zahra Khozema. Audio engineering and editing by Kyle Fulton. Our executive producer is Kiran Rana. And thank you to guests Connor, Adele and Dave.
ROB: If you liked what you heard, give us a five star rating and review on Apple Podcasts. Our next episode is about micropayments. Those buy now, pay later plans that you’re seeing everywhere. Is it a smart idea to use those plans? Or is it better to save up before making a purchase? We’ll talk to Canadians who have used them and hear about their experiences.
ROMA: You can find Stress Test at Apple Podcasts, Google Play, Spotify or your favourite podcast app. You can find us at the Globe and Mail, where we cover all things financial and all things inflated. Thanks for listening. See you next week!