Peter Leeds is stocking up on paper towels for the coming inflation. If that sounds a little excessive, it's because the Toronto-based investment analyst is serious about protecting his purchasing power. Don't even get him started on the risks of phantom inflation: "The cereal box: It's the same size, it's the same price, but there's less contents in the box," he laments.
With inflation still a relatively low 2 per cent in Canada, most of us probably haven't given much thought to what could happen to prices, says Mr. Leeds, author of the new book Invest in Penny Stocks: A Guide to Profitable Trading. We only need to look to India, however, where inflation is about 8.6 per cent, or China, where it's at 5 per cent, to see where prices are going.
"The inflation that is there is dramatically higher than here, and it's going to be exported to us," he warns. "If something in China costs more to make, we're going to wind up paying for it eventually here."
As inflation grows, purchasing power shrinks. At 2-per-cent inflation, for example, a $1 item will cost $1.02 a year from now. When you consider that everything from bread to gas will all increase in price, it adds up quickly.
So what can we do to prepare and protect ourselves? "You shop smarter," Mr. Leeds says. "If you get non-perishables and they're at a good price, you can stock up on those. A roll of paper towels isn't going to go bad, but it may cost a lot more six months from now. Buy things that are on sale."
Inflation is not all bad. It provides a good opportunity to make money if you choose the right investments, Mr. Leeds says.
"Since money is continually losing its value over time, it is not a compelling investment," he explains. "A pile of money on your desk will actually decrease in value just by sitting there."
"The Great Depression was when more millionaires were created than any other time in North America's history, and I think that we might see a similar situation," Mr. Leeds says.
Mr. Leeds has been buying up gold and silver coins, which are available from the Royal Canadian Mint and many banks. He's also investing in precious and base metals production companies, potash and fertilizer companies, and oil and gas, which all tend to benefit during times of inflation.
"With inflation comes higher food prices. It becomes harder to afford food," he says. "As a result ... potash and fertilizers become in much higher demand. People plant gardens, and farmers see the value of their crops and land become more significant."
Other tips for beating inflation:
1. Have a plan: Commit to learning about how inflation affects your purchasing power and investments, and use what you learn to create a personal inflation-fighting strategy. Try the Bank of Canada's inflation calculator.
2. Watch the numbers: Keep a close watch on inflation rates around the world and how they are changing. Check out the monthly Consumer Price Index.
3. Make investments: Get involved with investments that generally perform very well during inflationary times. Prices of precious metals (gold, silver), base metals (copper, aluminum), fertilizers (potash) and oil are likely to rise strongly.
4. Change your habits: Little changes will make a big difference. Buy supplies and groceries on sale. Stock up on non-perishables when the price is right. Use coupons. Take public transit. Reduce wasted food.