Six numbers that will govern your personal finances in 2022

The past year in personal finance has been like watching the events of a normal decade or two replayed at high speed.

So much drama in so little time. The worst inflation in decades, skyrocketing house prices, a stock market on fire, and growing acceptance of cryptocurrencies even as their price rebounded. We’ve also seen economic woes, including an increase in the use of food banks and the worst housing affordability in 31 years, according to CBR Economy.

A quieter year in 2022 would be welcome, but don’t count on it. Here are the numbers that determine how it all turns out:

Inflation

Prices grew at a rate of 4.7 percent from a year earlier in October and November, the highest inflation readings since February 2003. Inflation is devastating your household finances, forcing you to spend more to buy the same old things. Interest rate hikes are expected as soon as the spring, and this could dampen some of the increased demand we’re seeing for goods and services. Supply chain disruptions caused by the pandemic will also need to ease for inflation to subside.

You are more vulnerable to inflation if you are a senior who relies on conservative investments such as time deposits, or if you work in a job where salary increases modestly or not at all.

Salary increases

A sure sign that inflation is setting in is employers offering higher pay raises. Wages (as reported in Statistics Canada’s monthly employment reports) suggest this is already happening. Forecasters at Capital Economics say there is a strong chance that wage growth will exceed 3 percent annually by the end of the first quarter of next year, up from the end-2021 level of 2.2 percent.

With inflation as high as it is, a wage increase in the 3 percent range leaves you even poorer. But it is enough to add some urgency to the Bank of Canada’s thinking on inflation and the timing of interest rate increases.

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Bank of Canada overnight interest rate

This benchmark rate for lines of credit, adjustable-rate mortgages and floating-rate loans plummeted from 1.75% to 0.25% in just over three weeks when the pandemic hit in March 2020. Barring the economic damage from the Omicron COVID-19 variant, expect the Bank of Canada to start raising the overnight rate in 0.25 percentage point increments starting next spring or summer.

If you have a home equity line of credit, each rate increase will increase the amount of your minimum monthly payment. Variable rate mortgage payments cannot be adjusted further; Instead, you may find that more of your payments go toward interest and less toward repayment of principal. You will end up paying off your mortgage more slowly than expected.

Canada government bond yield five years

The interest rate paid by the federal government on bonds maturing in five years helps set the rates on five-year fixed-rate mortgages. Canada’s five-year bond yield surged through most of 2021, then took a step back late in the year as a result of concerns over the Omicron variant.

Expect five-year bond yields to rise in 2022, as soon as it becomes clear the economy is improving and inflation needs to be addressed. If mortgage rates also rise, expect higher monthly payments for first-time homebuyers and higher renovation costs for many existing homeowners.

house prices

The wealth gap between homeowners and those wanting to enter the market is likely to widen in 2022. Projecting a 21.2 percent increase in national median resale home prices by 2021, the Canadian Real Estate Association it included a forecast for prices to rise a further 7.6 percent in 2022 to around $739,500.

Rising mortgage rates can help curb price increases, but the problem is that it increases the cost of financing a home or condo purchase.

Stock markets

Market strategists appear optimistic that shares will rise in 2022 as the economy returns to normal levels of activity, Omicron allowing it. But hey, have stocks come much farther since the pandemic-driven March 2020 crash? globeinvestor.com shows a 76 percent rise for the S&P/TSX Composite Index since mid-March 2020 and a 100 percent gain for the S&P 500.

The momentum will fade at some point, which means there will be less enthusiasm for the kind of speculative stocks and sector investments that have done so well over the last 18 months. Earning some profit from these earnings could give you a head start on a positive personal financial scorecard in 2022.

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