Impact of inflation
Inflation Can Be Costly
The negative impact that inflation has on your savings over time is an ever-present, but often overlooked risk when investing. As the price of goods and services increases over time, a higher amount of savings is required to maintain the same level of purchasing power in the future.
For illustrative purposes only. The starting amount is the cost of a basket of goods and services that can be purchased today using an equivalent investment amount in current dollar terms. The future potential investment value assumes a 5% rate of return for a balanced approach and a 1.25% rate of return for a cash approach. The projected cost of a basket of goods and services assumes an inflation rate of 2%. The ahead or behind inflation amount is determined by subtracting the projected cost of a basket of goods and services from the future potential investment value. All returns and the inflation rate are compounded annually and do not include transaction costs, fees or taxes. The illustration does not reflect the actual results, future returns or future value of a mutual fund or any other investment.
Balanced
approach
Starting investment amount:
$10,000
Starting cost of a basket of goods and services:
$10,000
Ahead of inflation:
$930
Rate of return:
5%
Inflation rate:
2%
Starting investment amount:
$10,000
Starting cost of a basket of goods and services:
$10,000
Future potential investment value:
$2,530
Projected cost:
$1,600
Cash
approach
Starting investment amount:
$10,000
Starting cost of a basket of goods and services:
$10,000
Behind inflation:
$930
Rate of return:
1.25%
Inflation rate:
2%
Starting investment amount:
$10,000
Starting cost of a basket of goods and services:
$10,000
Future potential investment value:
$2,530
Projected cost:
$1,600
A Balanced Approach
An overly conservative investment approach can hinder growth potential and increase the risk of falling short of your goals. Striking a balance between your long-term goals and your investment approach can help you stay ahead of inflation.
Inflation Investment Primer
Inflation is a measure of the rate at which the price of goods and services in an economy increases over a period of time. Use the Inflation Primer Advisor Resource to review some of the key effects of inflation on individuals, businesses and the economy.
Food for Thought
Projected cost of a basket of goods and services
1Agriculture and Agri-Food Canada (2022).
2Egg Farmers of Canada (2022).
3Statistics Canada (2022).
4Coffee Association of Canada (2022).
5Statistics Canada (2022).
6Telefilm Canada (2022).
Prices are hypothetical using the estimated cost of goods and services in current dollar terms and assumes a 2% inflation rate compounded annually over 10, 20, 30, or 40 years. The estimated prices in today’s dollars (as of December 31, 2022) are: four litres of regular milk ($7.25); one dozen regular eggs ($4.45); one 675g loaf of white bread ($3.00); one cup regular coffee ($3.43); one-way local transit fare ($3.45); one regular admission adult movie ticket ($13.56).
Milk
On average, each Canadian consumes 72 litres of milk and 12 kilograms of cheese in one year.1
Eggs
Canadians consume approximately 8 billion eggs every year.2
Bread
The price of a loaf of bread in Canada has increased by more than 100% since 2000.3
Coffee
2 out of 3 Canadians enjoy at least one cup a day with the average at 2.8 cups/day.4
Transit fare
As more Canadians increasingly choose to live and work in urban areas, the number of commuters taking public transit has grown by more than 59.5% since 1996.5
Movie Ticket
On average, about two-thirds of Canadians go to watch a movie annually. However, increasing cost of tickets is the leading reason for not seeing movies at the theatre.6
