This text is part of the special section Personal Finances
Despite the promise of a return to a “normal” inflation rate, how can we hold on and, above all, how can we limit and repair the damage caused to our personal finances?
For many of us, the year 2022 is to be relegated to oblivion for an infinite number of reasons. But the impact of the major upheavals of the past year is already being felt irremediably at the start of the new year. Leading the way, record inflation is wreaking havoc even among the more affluent social classes, sparing almost only that famous “1%” who is richer and more capable of absorbing the shock.
For Quebec, even if the forecasts tend to announce a respite during 2023, the step from which the descent begins remains very high. According to the most recent data from the Chair in Macroeconomics and Forecasting at the School of Management Sciences of the University of Quebec in Montreal, the inflation rate is still around 6% for the beginning of the first quarter of 2023. , but should experience a steady decline to end the year at 3%.
So much for the overall picture. The question that follows: how to deal with this immutable reality while waiting for the inflation rate to drop? How to balance your budget? And above all, how to limit or repair the damage?
Increase your income when you have already reduced everywhere
“The data and forecasts are really encouraging,” said Pierre-Benoît Gauthier, Vice-President, Strategy and Investments at IG Wealth Management, noting the positive contribution of a dynamic Canadian economy and a global market. employment still growing. As for the direct impact of the fall in the inflation rate, he pointed out that not all sectors are affected equally. “The drop in price will be more marked on the side of non-essential goods than on the side of essential goods such as housing or food,” he explains, citing the naturally higher demand for the latter.
But following a year of slashing spending to the point where it feels like we’ve reached the maximum of the minimum, what to do while waiting to take advantage of the announced respite?
“The job market is to the consumer’s advantage, which facilitates the possibility of increasing his income,” recalls Mr. Gauthier. According to US data provided by the wealth manager, the increase in the number of available jobs exceeded the forecast for January 2023 by five times – 517,000 compared to a forecast of 114,000. Sud has reached 4.4%, a figure he considers comparable to Quebec, even if recent data are still not available.
Does this make it possible to obtain better conditions or even to find a side job to increase one’s income? “Absolutely,” says Mr. Gauthier.
And for those with the privilege of homeownership, he feels he cannot overemphasize the benefit of fixed interest rates. “The attraction for variable rates is very strong in Quebec, but in periods [d’hyperinflation], it can hurt a lot, and we have seen it. »
The problem of fixed income and debt
When incomes are fixed, as in the case of retired people, Mr. Gauthier admits that the solutions are a little more limited, beyond a return to the labor market. He explains that the liquidation of assets proves to be the only solution before turning to the ultimate recourse yet to be avoided as much as possible: debt. A little light at the end of the tunnel: the rise in interest rates will have had positive effects on investments for those who have been able to save.
But as Pierre-Benoît Gauthier observes, the debt ratio is reaching peaks, inversely proportional to the savings ratio.
How, then, to repair the damage?
“We will have to enter a mode of ‘deleveraging'”, explains Mr. Gauthier. Higher-rate debts, such as credit cards, will obviously be given priority. Another tip: take advantage of lower prices to save more.
Moreover, he foresees the possibility of a recession in the medium term, recalling that this is a normal phenomenon, the economy functioning by cycle. But he remains optimistic. “The current vitality of the job market should mean a milder recession”, thus suggesting to preserve the current employment as much as possible to be able to benefit from a predictable income, and thus maintain the capacity to reduce debt .
This special content was produced by the Special Publications team of the Duty, pertaining to marketing. The drafting of Duty did not take part.