Inflation has hit its highest point since February 2012’s 2.6%. It now sits at a lofty 2.5%, and is expected to hold steady until the second half of 2019. Poorly understood, inflation, together with high taxes and rising interest rates, is a great wealth eroder.
This trend brings with it an opportunity for you to add value in discussions with clients.
Up from 2.2% in May, the 2.5 percent inflation rate applies based on economic trends throughout the month of June. This is above the Bank of Canada’s target midline rate of 2%. Bank of Canada uses its prescribed interest rate to keep inflation in check. But consistent increases, like those earlier this summer and the next one anticipated with the fourth quarter announcement this fall, have implications to debt management in particular.
Bank of Canada rate increases drive up the prime lending rates of the big banks, as well as the Canada Revenue Agency’s prescribed interest rates. Though the banks’ rate hikes do not affect existing borrowers with fixed-rate products, new borrowers and those with existing variable-rate debt will definitely feel the pinch on their pocketbooks, and so will those who are behind on what they owe the taxman.
What issues should be discussed? For consumers who need a loan or are intending on making a home purchase, it’s important to speak to your financial advisor about the best strategy for your personal financial circumstances. One valuable approach may be to take advantage of lower rates available today, before they rise further over the next year. If you have consumer debt, variable-rate loan products, or you owe money to the CRA, paying down this debt should be among your top priorities.
For investors, revisiting a holistic Real Wealth Management strategy is critical at this time. This means focusing on how to accumulate, grow, preserve and transition wealth with sustainability after taxes, inflation and fees like interest and professional costs. Look for a tax or financial advisor who has Knowledge Bureau’s Distinguished Financial Advisor or Real Wealth Manager certifications. These specialists can help you with tax-efficient strategies to mitigate the risks of rising inflation and interest rates that will affect you over the next year.
For more insight on effective strategies and interpretations about Bank of Canada prescribed rates and inflation, we also recommend reading some of our previous coverage on these subjects:
- “Housing Affordability: Borrowers Take a Hit from Rising Interest Rates”
- “Rising Interest Rates on the Horizon: Who Will Feel the Impact?”
- “Tax Tip: What’s Deductible When Interest Rates Rise?”
Additional Educational Resources:
- Help Canadians with issues like these – learn more about Knowledge Bureau’s customizable online curriculum options, including those that will earn you credits towards DFA or RWM designations. Register before September 15, 2018, for tuition savings! Free trials are available of many courses.
- Pick up a copy of Evelyn Jacks’ Essential Tax Facts – it’s an essential tax resource for Canadians managing their finances throughout every life stage, as well as professionals in the tax and financial services.
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