Exactly how much pain should we expect for our personal finances for the rest of 2022?

The firehose of bad personal finance news has slowed down this summer.

In your investment accounts, stocks have recovered some of their losses and bonds have improved significantly. On a day-to-day basis, gasoline prices have fallen sharply from early-year highs, and there are indications that the headline inflation rate has finally peaked.

Disappointed with accommodation? The decline in prices has slowed and the upward pressure on fixed mortgage rates has eased considerably. Worried about your job? The labor market should remain tight throughout the year and the unemployment rate is exceptionally low.

The financial world could fall back into darkness within 24 hours of reading it – make it 24 minutes. But we may have just been through the worst of the pandemic pandemonium in the economic and financial world. Take a breath, enjoy the last two weeks of summer, and remember that having money in a high-rate savings account is a defense against economic setbacks.

Inflation and high interest rates remain the biggest threat to household finances today. But while Canada’s inflation rate was unacceptably high at 7.6% in July on an annual basis, it was down from 8.1% in June. This is the first deceleration in inflation in 13 months.

The 20% decline in the average gasoline price from peaking around $2.10 per liter in June was largely downside, and there is reason to be optimistic about the broader aspects. supply and demand inflation. Addressing pandemic-related supply chain issues will help, as will lower consumer spending. Yes, consumer demand is helping fuel inflation.

RBC Economics reports that while spending by bank customers using credit and debit cards was 30% above pre-pandemic levels in July, it fell slightly in August. Total restaurant sales were flat in July and the total number of transactions fell 3.5%.

Inflation is a two-fold misery: the prices of goods and services rise, as do interest rates, as central banks attempt to control rising costs. The Bank of Canada is far from done raising its overnight rate – an increase of half or three-quarters of a percentage point is expected on September 7. Expect the cost of variable rate mortgages, lines of credit and variable rate loans to rise in sync.

But in the bond market, interest rates have recently fallen sharply. The five-year Government of Canada bond, a key component in setting five-year fixed mortgage rates, plunged to about 2.9% from nearly 3.6% in mid-June. For now, we can say goodbye to the upward pressure on the cost of fixed rate mortgages.

Falling bond market rates are great for your investment portfolio. Bond prices and yields are moving in opposite directions, meaning that hard-hit bonds and bond funds have started to recoup some of their losses of the past year or two. The benchmark FTSE Canada Universe Bond Index rose 3.9% in July, reducing its losses for the previous 12 months to 9%.

Stocks have also rebounded somewhat from their recent lows. Investment portfolios that looked awful a few months ago are beginning to normalize, as they inevitably would have over time.

Financially, people seem to have more emotional investment in their homes than in their wallets these days. House prices have been falling since winter, largely because rising rates have made mortgages much more expensive. This is quite a shock for a real estate market in which buyers justified any cost based on the fact that prices would continue to rise indefinitely.

July marked the fifth consecutive monthly decline in house prices, but again there is a hint of not-so-bad news. According to TD Economics, the pace of decline in July was the slowest in five months.

The most important good economic news is the resilience of the labor market, even as some tech companies cut their workforces. The historically low unemployment rate of 4.9% has tightened the labor market in a way that gives workers a better avenue to get raises and new opportunities.

Staffing firm Robert Half recently offered an encouraging outlook for the rest of the year in the labor market: four in 10 employers plan to add staff, and only one in 10 see hiring freezes or layoffs.

This year has been one of the worst and first for personal finance so far – the worst inflation in 40 years, the first serious drop in house prices for people under 50. Slowly, we may have reached a turning point.

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