Watch out for how inflation eats away earnings

People often mock economists for confirming the obvious, usually late and with too much detail. So I'm pleased to report that Statistics Canada can confirm that yes, things are getting more expensive at the grocery store.

People often mock economists for confirming the obvious, usually late and with too much detail.

So I’m pleased to report that Statistics Canada can confirm that yes, things are getting more expensive at the grocery store.

In their February data, they report that food was up four per cent in January compared to a year earlier. This is on average across the country and was double the inflation rate of two per cent in general. Fresh fruit was up 12.9 per cent and fresh vegetables were up 18.2 per cent, both affected by the lower loonie since that makes foreign food more expensive. The broccoli, cauliflower, celery and peppers sub-category rose particularly quickly at 22.7 per cent.

Meanwhile, the sugar and confectionery sub-category actually got cheaper. So did processed meat.

If one of your kids tells you that this data suggests you should substitute away from broccoli to chocolate and baloney for dinner, you’ll know you have a budding economist at the table.

You can retort that they can start walking to the grocery store to help you shop, since driving there also got more expensive. Gasoline was up 2.1 per cent over the period, although it is still around 25 per cent cheaper than it was during the 2011-14 period before oil prices started to go down.

In terms of product categories, inflation was also above the national average over the last year in the “recreation, education and reading” category (2.2 per cent) as well as booze and tobacco (3.1 per cent). The only major category that actually went down in price was clothing and footwear (-0.3 per cent)

The good news is that inflation in Whitehorse is lower than the national average by a small amount. In fact, since Statistics Canada started its current inflation index in 2002, only B.C. has had lower inflation than Whitehorse (Statistics Canada reports only for Whitehorse and not the whole Yukon). A basket of goods that cost $100 in 2002 would now cost $124.10 in Whitehorse, versus an average of $126.80 across Canada.

Inflation can be an insidious force. Not only does it sometimes do things like discourage eating broccoli and reading, but it also affects people in ways that seem unfair. It can be a real challenge for people that have non-government jobs without cost-of-living protection, or retirees on fixed incomes. At least two per cent is relatively better than the 1970s and 1980s when rates ranged from four to 12 per cent.

The low interest rates we have seen since the financial crisis have created a class of inflation victims that don’t get much attention. These are the savers, whether they are people close to retirement or First Nations with endowments from their self-government agreements.

Older Yukoners nearing retirement might be wise to avoid the risks of today’s topsy-turvy stock markets, yet putting money in the bank at 0.5 per cent interest is a sure way to lose purchasing power when inflation is four times higher. Ditto for a First Nation fund manager trying to be prudent with her people’s investment portfolio.

Things could get even worse for savers. Citigroup, a major international bank, recently put out a report that Canada may be among a small group of countries to follow Japan, Sweden and Denmark into having negative interest rates. This means, believe it or not, that you might have to pay your bank to hold onto your money for you.

So what does all this mean for Yukoners?

Unfortunately, there are no easy answers. It is a terrible idea to stop eating fresh fruit and vegetables just because Statistics Canada put out another depressing report on inflation. But you may be able to save a few bucks by buying smarter. Websites like Mr. Money Moustache enjoy figuring out how you can get the most nutrition per dollar. He even makes his own breakfast cereal.

It may be an obvious point (although I often forget it when in a hurry at the grocery store), but keep an eye on your purchases and steer around the old favourites that have spiked in price. Mr. Money Moustache has a nice set of rules. If a food is expensive, skip it this week. If average price, buy enough until your next grocery shopping trip. If a staple like rolled oats is drastically underpriced, buy a “near-infinite amount” limited only by the shelf-life of the food.

Solving the saving problem is harder. Money market funds tend to yield less than one per cent. Even locking your money in a five-year guaranteed investment certificate will only get you 1.5 per cent these days, which guarantees eroded purchasing power if inflation stays around two per cent. Unfortunately, higher-yielding alternatives such as dividend stocks or corporate bonds all involve more risk, sometimes a lot more risk. This is something to discuss carefully with a trusted financial advisor.

Perhaps hardest of all is getting a raise to cover the rising cost of living, if your work contract doesn’t already include such a provision. The Yukon economy is in a funk, so bosses are not very receptive to being asked for raises these days. On the other hand, quite a few studies show that many people don’t ask for raises often enough.

Sadly, inflation is just one of those things like taxes that we just have to manage. Just be thankful you don’t live in Argentina, where inflation is so high and poorly reported that the new president has declared a “statistical emergency.”

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won this year’s Ma Murray award for best columnist. You can follow him on Channel 9’s Yukonomist show or Twitter @hallidaykeith