Inflation, Recession, Economics and You

On a very serious note, the inevitable has finally started, the much anticipated crescendo of any upheaval of business cycles goes, the inflation period has started. I want to know what people are doing about it in terms of dealing with the world wide problem of rising costs? The Canadian Broadcast Corporation, CBC posted a news story on the numbers of this latest period that have been released from “Bloomberg,” that originally estimated the rate of inflation to be at 2.8 percent, but the actual numbers came in at 3.3 percent instead. However, some items have risen a lot higher than others such as gasoline and some food items like broccoli. Overall, this month, April 2011, we will see the sharpest so far for price increases in Canada. The new economy keeps changing.

For the first leg of my quest, I turn to the website called wise bread, which seems to be one of the most viewed sites out on the world wide web as a guide and source of news regarding recessionary and inflation issues and lifestyle. I turn particularly to a post it featured on December 28 2007, which does seem like a coincidence being that that was right after the holiday period when the economic meltdown was expediently cascading down hill across America. The advice in this post is very good and well written in terms of any period of economic downturn. So I will analyze it.

In the post the author explains rather well how the cascading effect of how a rescission works, and how the trickle down effect spills into all facets of the economy. In really good terminology, the whole process is explained in a down-to-Earth manner. Then the Post goes into some of the many options that both consumers and businesses can do to weather the downturn out. In particular, I love this quote, “Resist the temptation to rely on credit as your emergency fund” (Wise Bread, Dec. 28 2007). These are words to live by because once travelled down this road of using your credit to support your lifestyle with the absent income it will only prolong the inevitable and end up making your financial situation worse.

As for the news post from the CBC, Banks and other economic forecasters are the equivalent to the weather forecasters, as they can predict very well in the near future, but once they move beyond the short term window, it then becomes anyone guess. Predicting inflation is really like predicting a game chess between two champions because there are so many moves, and the amount of time until the endgame varies, no one  could ever accurately predict the path and outcome of the game. The markets are exactly like that. We can guess that Gold will preform very well during the economic downturn as it is traditionally viewed as a good investment to hedge against inflation, but no one can predict how it will actually perform during that period of increase in terms of time and levels. As Gold is but only one of many commodities out in the market being publicly traded, but it is special because it act like a commodity and currency all-in-one.

For all of us, food and gasoline are going to contribute to our daily costs. The almost 4 percent inflationary increase spelled out by this news story in the CBC website is only an average calculated out in terms of overall outlooks. In other words, it will effect everyone differently, and with varying degrees. If you are truck driver who hauls goods over large distances, the cost of gasoline will greatly effect you as compared to single person who uses public transportation in the same period of time. Some commodities have risen more sharply than others, so the balance how the rate of inflation effecting you will vary from you, as compared to say your neighbour. Where you live also plays an important factor in the rate of inflation. Because Canada is a resource based economy, bringing in finished goods is going to cost more than say someone living in the Untied States will pay.

So, tips on surviving the inflationary period of the recession:

 

  • Save, stock up on good deals, and do not over spend on unnecessary items. Money will be tight.
  • Reduce, or eliminate personal debt. Guaranteed that as inflation creeps in, so too will the rise in interests rates from any Bank. Perhaps one of the biggest traps in any economic downturn will be the debt to income ratio.
  • Live within your means. You will have to continually adjust your living expenses and exercise a live lean proactive lifestyle with reduced income versus increasing costs. For example, the days of going out to a restaurant will need to be scaled back, or if not completely stopped altogether.
  • Your Bank will not be your best friend. This ties into the concept of living on a promise.  To quote the Wise Bread web site, “If you live on promises, remember that promises get broken–especially in a recession.” (Wise Bread, Dec. 28, 2007).
  • Take on more work, or increase your income. For single income households, this could mean the stay-at-home spouse getting back into the work force, or you taking on extra work.
  • Living in a cash world. I know this topic gets little air play, but if you really think about it, with cash in hand, you know exactly where you stand in terms of your daily finances. The amount of cash will always remind you of where you stand at every moment between pay periods. The bank account does not have that same psychological effect.

Sources:

Wise Bread Website: Preparing for a recession – by Philip Brewer on 28 December 2007

CBC NEWS: Inflation rate highest since before recession – Posted: Apr 19, 2011

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