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April 06, 2021

How to protect yourself if inflation takes off

By Gordon Powers, Sympatico / MSN Finance

Rising food and gas prices pushed Canada's annual inflation rate to 1.4% recently, Statistics Canada reports. Core inflation – which excludes the most volatile prices – was actually 1.9% on the year. And that’s a modest jump compared to what some analysts predict we’re going to see in the not-so-distant future.

This may not seem like a very big deal until you realize that inflation acts as an insidious tax on savers and investors, that there hasn’t been a recession in history that wasn’t followed by inflationary pressure, and that the way to combat rising prices effectively is to buy protection.

Inflation can be a double whammy, since it not only eats away the worth of your dollars but it also tends to depress overall equity returns. Typically, energy is the best sector to back during higher inflation, whereas the biggest loser tends to be the financial sector.

All of which means investing in out-of-favour corners like indexed real-return bonds, commercial real estate and, if you’ve a got a long-term view, gold

To see how much of a difference even relatively low inflation can make, divide 72 by the expected inflation rate to see how many years it will take to reduce your purchasing power in half. A 4% rate of inflation, for instance, will cut the value of your money by half in just 18 ears – which, oddly enough, is the average retirement period for Canadians.

There are a variety of economic theories that try to explain why inflation happens – for a great visual look at the inner workings of inflation, click here. But really all you need to understand is that it does happen – meaning gradually, all around us, the price of things is increasing.

It’s time to protect yourself.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

James HaversJames Havers

James is the senior editor of MSN Money living in Toronto. He has worked for the Nikkei Shimbun (Tokyo),,, Canadian Business and other publications. Havers turned to journalism after teaching overseas.

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...