Inflation: a pain for many, but a plus for savers?

Writing for CBC, Don Pittis notes that the return of higher inflation will be both good and bad news for Canadians.

Observing that inflation in the U.S. is running at 6.2 per cent, and that the Bank of Canada’s Governor Tiff Macklem is predicting five per cent inflation here, Pittis writes that “if history is any guide, inflation can lead to turmoil.”

“Those effects include the pain of shrinking spending power, the prospect of labour conflict as employees struggle to get their spending power back, a potential disruption of Canada’s soaring housing market and a reconsideration for older people about how to make their money last through a long retirement,” writes Pittis.

But there can be an upside to inflation for some of us, he continues. He quotes The Intercept columnist Jon Schwarz as stating “inflation is bad for the one per cent but is good for almost everyone else.”

As an example, those saving for retirement will be pleased by higher interest rates, Pittis contends.

“It is clear that those saving for retirement may take a different view, especially as the boomer bulge exits the labour market. Even before the latest round of pandemic monetary stimulus, people contemplating a long retirement complained about a paltry return on savings. With inflation higher than the rate of interest, cautious savers are now watching with horror as their future spending power shrinks,” writes Pittis.

He notes that even as inflation ticks up, “lenders have been handing out mortgages at rates considerably less than the rate of inflation.”

Inflation, the article concludes, may lead to higher prices but also higher wages for workers; Pittis adds that any rise in the Bank of Canada rate won’t be an instant fix for inflation, but the beginning of a process that might take years.

Save with SPP can attest to some of the things Pittis points out by thinking back to the high-interest days of the ‘70s and ‘80s. He’s right to predict higher rates are a plus for savers – we recall getting Canada Savings Bonds that paid double-digit interest with zero risk. The same was true of Guaranteed Investment Certificates (GICs).

There was a positive effect on wages as well. There was federal legislation on wage and price controls that, among other things, limited wage increases to six per cent the first year, and five per cent the second. Six and Five. In the many decades that have come and gone since the old Six and Five days, it is hard to think of a time when people got routine pay raises that were that large.

So while we gripe about higher gas prices and grocery costs, and the jump in the costs of most things due to supply chain issues, this would be a good time to start stashing away a few bucks every payday for your future retirement.

A great destination for those loonies is the Saskatchewan Pension Plan. The SPP, now celebrating its 35^th year of operations, offers a balanced approach to investing. The SPP’s Balanced Fund invests 26 per cent of its assets in bonds, 7.5 per cent in mortgages and 1.5 per cent in short term investments. You can bet the plan’s investment managers are keeping an eye out for growing opportunities in the fixed income sector – and that’s good news for all of us who have chosen SPP to be a part of our long-term retirement savings plan.

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