Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

The economic situation today is as good as it gets for your household finances.

Inflation's low at just a bit above 1 per cent and wage increases average about 2 per cent. "Statistically speaking, we're doing better," said Benjamin Tal, deputy chief economist at CIBC World Markets. "But don't tell that to the average person because they don't feel it."

Yes, there are things wrong with our economy today. Growth here in Canada remains in a post-financial crisis funk, big companies have been laying off thousands of workers in recent months and household debt remains at astronomical levels. But from the point of view of people trying to cover their living costs and have a little left over, we've come to a sweet spot.

Story continues below advertisement

Don't waste it. Households will never be in a better position to pay down debt and save more. Inflation will eventually come back to devour pay increases you get.

Canada's inflation rate was 1.2 per cent in December, 0.9 per cent in November and 0.7 per cent in October, which compares to an average since 1995 of about 2 per cent. In its latest report on the economy, the Bank of Canada expressed concern about such a low level of inflation. It's a key reason why interest rates will stay low for a while yet.

Some people are suspicious of our standard inflation gauge, the consumer price index maintained by Statistics Canada. That's understandable when we have both 1-per-cent inflation and larger cost hikes for things such as home insurance, rent, hydro, daycare, university tuition and groceries.

Mr. Tal said the CPI is far from a complete measure of inflation, in part because it doesn't reflect the differing expenses of say, a senior, and a young adult. But it's the best gauge we have in that it reflects price changes in a basket of goods and services relevant to the typical household. Bottom line, you may be paying a lot more for some things, but overall inflation is running at roughly half the level people expect based on the experience of recent years.

Inflation expectations are what guide wage increases – that's why the latest collective bargaining update from the federal government shows average wage gains of 2 per cent in November. What happens to wages when inflation returns to 2 per cent, which happens to be the Bank of Canada's target rate? Probably nothing because wage gains would likely be right in line with inflation expectations. Net result: Your real wage gains (after inflation) will amount to little or nothing.

A worse outcome would be inflation running above 2 per cent. Mr. Tal said it could take a couple of years for inflation expectations, and thus wages, to catch up to a higher inflation world.

This brings us back to the argument that today's economic conditions are as good as it gets for your household. "In real terms, the purchasing power of income is rising," Mr. Tal said. "That's one of the reasons why the consumer surprised on the upside in 2013. Real income was actually better than expected because of lower inflation."

Story continues below advertisement

Spending your increase in after-inflation income is a wasted opportunity. A smarter use of the money is to increase the payments you're making on your line of credit or credit card debt. If you're in the early years of your mortgage and paying mostly interest every month, then consider bumping up payments a little.

If debt isn't an issue at your house, try increasing the amount you're saving on a regular basis. The median total pretax household income in Canada was around $72,000 as of the most recent tally. A modest goal: Try to save an extra 1 per cent of that amount per year, or $60 per month. If you can't hack that, then try to save 1 per cent of your after-tax income.

The unfortunate thing about looking at average numbers for pay increases is that there's no acknowledgment of the workers who have had their pay frozen or their work hours reduced. Plenty of people are hurting in today's economy – we know that from the recent headlines about job losses at Bombardier, Sears, BlackBerry, Potash Corp., Heinz Canada and Kellogg. Quietly, though, there are some economic numbers working in your favour. Act now, or watch inflation eat your lunch down the road.

Follow me on Twitter: @rcarrick

Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies