TORONTO -- I would love to see a little inflation and, yes, I would be happy if prices ticked a little higher.

No one likes to spend more then they have to; however, higher prices might start to indicate the economy is showing signs of recovery. Most central banks around the globe, the Bank of Canada included, would like to see inflation around 2% but we are aren't there - yet.

I would argue a little inflation is far better and easier to manage then deflation. When you have deflation it suggests prices are falling and if I was thinking about buying a car I might continue to put it off in the hopes that I would get the car cheaper tomorrow than it is today. By delaying my purchase I'm not helping out the economy at all. And in fact, by delaying a purchase, I'm hurting it. If inflation were to kick into gear I might be more inclined to buy the car today for fear prices continue to climb higher.

There are winners and losers when it comes to inflation:

  • If you are a senior, keep in mind that CPP and OAS benefits are indexed to inflation. As inflation heads higher so does your benefit. Also if you have money sitting in cash you could see rates move higher in your savings account and that would be welcomed by those who have been earning next to nothing, and in fact after taxes and even a little inflation, those sitting in cash have likely been losing money.
  • Anyone with a loan or mortgage could benefit from higher inflation as it often leads to higher wages. With higher wages, loans and mortgage will use up less of your after-tax take home pay and result in more money in your pocket. Of course, if we see falling inflation, wages are not going higher and result in a higher cost to service the debt you have. In a world of zero inflation some employers could also cut wages.
  • Our government has racked up over a trillion dollars in debt in part combating COVID-19 and they too would love to see that amount eroded by higher inflation numbers. As long as we see a little inflation tax revenue should go higher.

While inflation overall has not moved, we have all experienced paying more at the grocery store and this in turn leads to food insecurity. This is tough on Canadian families during the pandemic as it has cost more to produce, process and distribute food. Grocers have had to implement physical distancing measures and procedures to safeguard our health add to this increased automation and the result has been that costs have gone higher. The challenge for grocers is they have to charge more in an already tough environment. This of course is hard for families who are already struggling financially.

Gas prices are lower due to higher production and softer demand resulting in more money in your pocket. However, keep in mind that as gas prices head higher online shopping also sees an increase.

If we start to see a little inflation we will all breathe a little sigh of relief. Depending on what your basket of goods consists of, this will translate into saving more or spending more. However, as we look at our own balance sheets, signs of an economy that is righting itself will mean more in the long run than slightly higher inflation.