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Shane Dubin Explains the Problems of Inflation and Rate Hikes and How Canadian Investors Should Cope
Today, the Canadian economy has been rocked by the dual impacts of inflation and rising interest rates. Canada’s inflation rates have been at their highest in the past 18 years. It is becoming more expensive to maintain the same standard of living in Canada, and wages have not grown at the same pace as consumer prices. As a result, most Canadian families try to do more with less.
Inflation and high-interest rates also affect people who want to invest their money. Canadians have less discretionary money to put into their investments when all of their necessary living expenses have been paid. In addition, higher interest rates mean that Canadian residents and businesses are in a more difficult situation when borrowing money through home loans, credit cards, and the like.
Shane Dubin, a wealth advisor from Toronto, Ontario, Canada, shares how high-interest rates and inflation are impacting the Canadian consumer at the close of 2021 and how changing economic conditions will affect those involved in investing their money.
The Problem of Inflation
Inflation has become a top news story in Canada and the United States. Shoppers are dismayed by the increasing cost of holiday gifts, travel, food, and gas. Rising fuel prices have a ripple effect on the entire economy since they affect industrial production and people’s lives at home.
The reasons behind today’s inflated prices are many. Supply chain issues triggered by the Covid-19 pandemic have restricted the number of goods moving between nations. Port slowdowns due to a lack of labour and fewer ships are causing demand to go up while supply decreases. When demand and supply are affected in this manner, inflation invariably results.
The constraints in supply across Canada have mainly been in goods. According to the Bank of Canada, in 2021, the average inflation rate of goods has been 4.4 percent. This is much higher than the inflation rate in services at 2.1 percent. Over the past 20 years, pre-pandemic inflation of goods averaged a mere 1.4 percent. Consumers notice the pinch in their pocketbooks, and they are beginning to react strongly to changes in the market.
Rising Interest Rates
Another component Canadian analysts are watching closely is the rise in interest rates. The Bank of Canada maintains that the economy will recover in the coming year and raise rates beginning in April 2022. In December 2021, the bank acknowledged that inflation had gone beyond a temporary situation.
How Investors Should Cope with Inflation and Rising Rates
Shane Dubin believes that investors should not give up on the Canadian economy. Despite continuing inflation and a potential rise in interest rates, the economy’s underpinnings are strong, and it could be an excellent time to invest. If companies and individuals have the cash, they should invest in energy companies and goods suppliers. These sectors of the economy stand to gain the most from the changes brought on by inflation.
Creating an Investment Strategy
According to Shane Dubin, while inflation has a chilling effect on investment, Canadian investors should not be overly worried about it. The economy’s fundamentals are strong, and job levels have nearly returned to their pre-pandemic state. There are jobs for people who want them, and there are significant opportunities in the market for people who want to invest.
Investment advisors caution that growth going into 2022 will not be as pronounced as in 2021 when the economy was coming out of a near-total shutdown. Understanding how the pressures of the pandemic made their mark on the financial market is difficult, but it is essential to know how to allocate investments in 2022.
Advice for Investors from Shane Dubin
Investors in Canada and around the world should not forget about the power of compound interest. If investors start at an early age, they can build a significant nest egg by the time they are prepared to retire. Consulting a wealth advisor can help investors allocate their money in these difficult economic times.
Canadians are living longer and need to save more for retirement. More aggressive strategies are necessary for younger investors who will be in the market long enough to blunt the effects of serious short-term changes like inflation and rates rising. Investors closer to retirement should be less risk-tolerant and focus on preserving their money for their personal needs.
Understanding the Canadian Economy
Investors should keep a close eye on the Canadian economy and consult with their wealth advisors to make sure that they are making the right decisions. Having a thorough understanding of inflation and rate hikes can mean that an investor is prepared to deal with the shifting challenges presented by today’s investment environment.
As the Covid-19 pandemic runs its course, its economic effects will continue to diminish. Wealth advisors can help their clients decide the best course of action to protect their future income.
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