# Up to what point does inflation starts to bother you?



## SkyFall (Jun 19, 2012)

When you are holding cash, up to what point does inflation starts to bother you? Assuming inflation in Canada is around 2.5%, up to what amount of cash you would ''park'' it to try to minimize the effect of inflation on your cash?

I mean if you have $1000 and do know what to do with, do you really care about inflation? it's $25 you are losing.... but on $100k it's different....

So up to what point for you guys?


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## HaroldCrump (Jun 10, 2009)

To me, these two questions are not necessarily mutually exclusive i.e. inflation may bother someone and yet it may still be okay to hold cash.

Personally, inflation does bother me and I completely disagree that inflation is 2.5% (or what fairy tale CPI number StatsCan/BOC is publishing this month).
Individual inflation - the only thing that matters to a consumer/household - is far higher than 2.5%.

However, that does not mean that I need to "invest" every last dime into the stock/bond market to try and beat "inflation".
Holding cash in regular chequing and savings accounts has a different purpose (actually, a couple of different purposes).

Beating inflation is indeed important (both the official CPI number as well as the real, personal inflation).
But that should be done in two ways - inside an investment portfolio and second, through wages & earnings.

Investing every dollar into the stock/bond market to try and beat inflation is not prudent.
You will simply end up chasing yield and/or take on unnecessary risk in your portfolio.
IMHO, of course.


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## yyz (Aug 11, 2013)

Actually on $1000 per your example above it would be $25 not $2.50


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## Beaver101 (Nov 14, 2011)

HaroldCrump said:


> To me, these two questions are not necessarily mutually exclusive i.e. inflation may bother someone and yet it may still be okay to hold cash.
> 
> Personally, inflation does bother me and I completely disagree that inflation is 2.5% (or what fairy tale CPI number StatsCan/BOC is publishing this month).
> *Individual inflation - the only thing that matters to a consumer/household - is far higher than 2.5%.*
> ...


 .... +1 ... so what's your take of the real (Individual) Inflation rate these days? 5%?


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## SkyFall (Jun 19, 2012)

yyz said:


> Actually on $1000 per your example above it would be $25 not $2.50


my bad hahhaha


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## brad (May 22, 2009)

HaroldCrump said:


> Beating inflation is indeed important (both the official CPI number as well as the real, personal inflation).
> But that should be done in two ways - inside an investment portfolio and second, through wages & earnings.


And a third way too: by building your own personal resilience to inflation. If the price of clothing is going up, buy clothes at the thrift store. I bought a perfectly good shirt at the thrift store 10 years ago for $5. Guess what? Today I can get a shirt like that at the thrift store for $5. Inflation? What inflation?

If the price of gasoline is going up, figure out ways to reduce your dependence on gasoline. It's not possible for everyone, of course. But to the extent that you can reduce your exposure or dependence on things whose prices are rising, you insulate yourself from inflation. Food prices going up? Grow some of your own or change your diet. Heating and electricity going up? Make your home more energy efficient (I know, Harold, you've done everything you can to make your home more energy efficient, but you're in the vast minority there. Most people have lots of room for improvement).


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## tygrus (Mar 13, 2012)

Two things about inflation that are worrisome;

First is measurement is off by a couple percent at least. Count in the cost of housing over the past decade and its high. But the numbers are cherry picked by govt and markets. 

The second point is more important. Essentially, all our economic growth is either only inflation or if its not, its being eaten by inflation every year. Consider that most counties GDP is right about 2-3%, which is exactly the same as reported inflation. So either inflation is actually being created as a substitute for organic growth, or if its not, then GDP is being eaten by the same number. 

This means we are basically hamsters on a wheel and the economy is not really improving or its being cancelled out at the same pace as its being created.

This isn't a real economy anymore but I am not sure there is much we can do about it. The thing we must do about it is keep up with it. So you have got to be getting a real return at least as much as inflation.


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## HaroldCrump (Jun 10, 2009)

brad said:


> And a third way too: by building your own personal resilience to inflation. If the price of clothing is going up, buy clothes at the thrift store.


Yup, that is _*substitution effect*_.

It is indeed going on, and I'd say has been going on for as long as I remember.
In our household, we have certainly been implementing substitution quite consciously in the last several years.
Inflation has been particularly bad since the 2008 crisis, and we have done substitution in most aspects of our consumption - from food to clothing to transportation.

We do have a vegetable garden as well, which produces a nice yield during the 2 peak summer months.
Mostly tomatoes, squash, cucumbers, bell peppers, and some assorted herbs.
Most years the yield is good enough to freeze for the next couple of months.

From an investment perspective, one could tweak the portfolio to make it more inflation indexed by investing in companies whose earnings & dividends increase with consumer inflation, such as telcos (Bell, Rogers, etc.), gasoline refiners and retailers (Shell, Suncor, etc.), tobacco manufacturers (PM), etc.
Have to be careful with this strategy, of course, because costs tend to go up as well and there is often margin compression (such as the grocers).

Weighing a portfolio too heavily in favor of inflation indexation can cause under-performance.

So-called RRBs (real return bonds), incidentally, are completely useless in protecting an individual/household from consumer inflation.
For that matter, anything linked to the CPI instead of the real market forces via the stock market is not very useful in inflation protection.


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## HaroldCrump (Jun 10, 2009)

Beaver101 said:


> .... +1 ... so what's your take of the real (Individual) Inflation rate these days? 5%?


That would depend on your specific consumption mix.
Unless you are a regular purchaser of items that are deflationary (such as electronics, clothing), you are probably in the double digit % range.
Some sub-categories of food & energy inflation are worse than others, such as meat and gasoline (respectively).

Here is a quick & simple basic household goods price inflation comparison attached to my last month's gas bill:
http://www.uniongas.com/residential/eflyers/2014/intouch-may

You can reduce your personal CPI through substitution as discussed above, but the official numbers like 1.2%, 1.5% etc. are just plain laughable.


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## cainvest (May 1, 2013)

SkyFall said:


> When you are holding cash, up to what point does inflation starts to bother you?


Current inflation rates don't bother me at all, maybe if they tripled over the recent history I would start to take notice but what does one really do about it?
I already live a rather frugal lifestyle and I'm not going to adjust my investment asset allocation (income/equity %) because of inflation numbers. If it really became bad I'd just cut back on the more expensive things, cut other costs where I can and save more money for retirement ... that's about it.


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## RBull (Jan 20, 2013)

It would have to be a fair bit more than whatever it really is now to have an impact. We're very frugal in many ways now. There's lots of ways to substitute, do some of your own work & services, grow some of your own food, buy used clothes & other items, look for deals on many things etc which all lessen the impact of inflation. As well we would just cut back our lifestyle if required to stay within our retirement budgeting. Right now we're the other way and need to convince ourselves to spend a lot more. LOL

The things that would concern me most would be higher property, income and consumption taxes, higher fuel costs, higher electricity costs.


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## HaroldCrump (Jun 10, 2009)

RBull said:


> The things that would concern me most would be higher property, income and consumption taxes, higher fuel costs, higher electricity costs.


Each and every one of the above has already been happening, esp. since 2008/9 (in Ontario, at least).


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## NorthernRaven (Aug 4, 2010)

HaroldCrump said:


> That would depend on your specific consumption mix.
> Unless you are a regular purchaser of items that are deflationary (such as electronics, clothing), you are probably in the double digit % range.
> Some sub-categories of food & energy inflation are worse than others, such as meat and gasoline (respectively).
> 
> ...


I have a little second-hand experience with CPI series. They don't come out of thin air - StatsCan does household expenditure surveys, creates the "basket" of goods, and weights and updates that basket periodically. While everyone's expenditure patterns will have a different relationship to that basket, and certain things like housing/rent can be locally volatile, I'd hardly say that CPI numbers are "laughable". I took a quick look at 2002-2013. 2002 is the base year = 100.0. 2% annual inflation would put 2013 at around 124.3 (it is actually just under at 122.8).

Inside the basket, Food (which is weighted around 16%) comes in at 132.4, a bit higher than average. Fresh/frozen beef (139.3) and bread (185.0) have indeed run above average (which is why your gas company cherry-picked them). But things like potatoes (105.4) and "other fresh fruit" (107.5) haven't gone up much, and help bring the food basket down.

Similarly, household appliances, furniture and tools are all in the 80-87 range, meaning comparable products are actually cheaper than they were 10 years ago. People tend to notice increases and not register declines in the same way. There are various quibbles about methodology, update frequency, etc., and a price index isn't the appropriate measure in all things financial. But if one seriously thought that they were in "double digit" inflation range, the difference between bank interest or moderate equity returns isn't going to make much difference - you'd need Madoff-like results to keep even...


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## houska (Feb 6, 2010)

NorthernRaven said:


> They don't come out of thin air - StatsCan does household expenditure surveys, creates the "basket" of goods, and weights and updates that basket periodically. While everyone's expenditure patterns will have a different relationship to that basket, and certain things like housing/rent can be locally volatile, I'd hardly say that CPI numbers are "laughable". [...] People tend to notice increases and not register declines in the same way.


+100. We're hyper sensitive to the things going up, and also to the increase in choice caused by improving supply chains and higher aspirations. Yes, various things at various times have (by definition!) higher-than-average inflation, but StatsCan does a pretty good job trying to average all of that out. But if you take a look at what is available in the local grocery store, at entertainment options, at consumer electronics, etc -- the problem is not the inflation of the cost of the basket, but the inflation in what we expect as normal.


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## cannew (Jun 19, 2011)

Inflation is a fact of life and anyone who does not recognize that prices will continue to rise, each and every year, is in for a bad time during retirement.

I feel fortunate that I found the Connolly Report many years ago and changed my investment strategy. Until that time I was trying to buy & sell to build the pile, beat the market, and show at least 15% gains. After about 8 years I was at breakeven, not counting inflation, or losing money.

Since I changed to dividend growth investing, I've seen my annual income grow at a rate between 6% to 9% and the value of my investments about the same. My dividends now are about double my pension (cpp & oas) and growing each year, well above inflation.


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## techcrium (Mar 8, 2013)

If you run with debt or with leverage, then inflation works WITH you.


4% interest rate - 2% inflation....2% real borrowing cost.


If you can't beat it....then join it.


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## RBull (Jan 20, 2013)

HaroldCrump said:


> Each and every one of the above has already been happening, esp. since 2008/9 (in Ontario, at least).


Yes, they are here as well. These are most concerning to me since there is no option to reduce or substitute for them. Re power I have completely renovated my home after energy audit, upgraded all insulation and heat pumps to R2000+ standard.

It is well past due for federal and provincial government to cut program spending and reduce - not increase the size of government. Consumption taxes here are the highest in Canada. At 15% a lot of spending gets curbed and things go underground with many services. Power and income tax is either the highest or 2nd highest in Canada.


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## rikk (May 28, 2012)

SkyFall said:


> When you are holding cash, up to what point does inflation starts to bother you? Assuming inflation in Canada is around 2.5%, up to what amount of cash you would ''park'' it to try to minimize the effect of inflation on your cash? So up to what point for you guys?


Inflation as such does not bother me as relates to holding cash mainly because my after tax income is currently three times what I spend. Price increases in items pertinent to me (e.g. gas, electricity, property taxes, ... ) bother me when I don't see the justification ... bread for example, what, me care, I don't eat bread.

OT: What irritates me a tad about holding cash, is the tax at marginal rate on the interest as compared to trading, eligible dividends, but that's my choice at present, so I simply shop around for the best interest rate, sleep well at night, and forget about it.

Afterthought: And fwiw, Peoples Trust currently has their TFSA @ 3% ... that's a tax free 3% vs the assumed 2.5% inflation rate ... and ... that 3% tax free for me is equivalent to about a 6% before tax rate (40% marginal tax plus the 15% OAS loss) ... so ... holding cash is not so bad, depending. I closed my investment TSFA recently, looking forward to new year and upping that Peoples TSFA balance.


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## My Own Advisor (Sep 24, 2012)

I don't see much point holding lots of cash now...a bit, yes, maybe a few $k.

Like rikk, prices that affect me are gas, hydro, property taxes and groceries. Since these things are always on the rise, I need to have my money (most of it) working for me to combat inflation.

I wouldn't be "parking" lots of money to minimize the effect of inflation on my cash, inflation eats cash for breakfast.


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## OnlyMyOpinion (Sep 1, 2013)

Well HC, this story should be dear to your heart - MACLEAN's Canadian BBQ Index. It looks like we're relegated to tube steaks this summer. Or put another way, the guests will be asking 'where's the beef?' :upset:
http://www.macleans.ca/economy/money-economy/your-bbq-season-is-more-expensive-than-ever/
View attachment 1265


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## fraser (May 15, 2010)

Well, my favourite red plonk from Chile and Argentina (and sometime Oz) was going up in price and I was not a happy camper. Now it seems to have gone back down a little. Not certain if the CAD is tracking to those currencies or not. But when the price increases, it always seems to be by an even dollar a bottle.


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## HaroldCrump (Jun 10, 2009)

More inflation updates:

*Bacon prices in Canada are nearly 27 per cent higher today than they were a year ago.*

_Ground beef is up 15.4 per cent over the past year. 
Canned sockeye salmon is 23 per cent more expensive today than it was a year ago._

Here is another Op. Ed. stating that_* inflation is causing negative wage growth for average Canadians*_.


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## HaroldCrump (Jun 10, 2009)

NorthernRaven said:


> Inside the basket, Food (which is weighted around 16%)


So you spend only 16% of your monthly disposable income on food?
Really?
I wonder what those StatsCan "economists" eat...must be eating dog chow.

I don't recall _ever_ spending as little as 16% of monthly income on food - even when I was single, living on one income with no kids.

Note that I have _detailed, itemized_ record of every expense for the last 12 years, tracked in Excel.
I am willing to slap that data on the face of any StatsCan paper-pusher you care to bring forward.

Now, it is possible that my spending patterns are at odds with most households, but I doubt that.
Most friends and family spending patterns are similar, give or take, i.e. they spend more than 16% on food.

I am familiar with my parents' monthly expenses (they are retired), and they spend more than that on food for sure.



> Similarly, household appliances, furniture and tools are all in the 80-87 range, meaning comparable products are actually cheaper than they were 10 years ago.


But consumers do not buy those appliances on a regular basis, do they?
I haven't bought a TV, dishwasher, or other appliances in years.
The effect of even a 25% price increase in TV sets is a lot less hassle than even a 5% increase in food prices YoY.

Similarly, imputed rents are not the best way to measure housing costs.
Housing costs should be measured by accounting for the full cost (principal + interest) over the entire amortization period - this is where the true effect of those 5% down, 30 and 35 year amortizations will be evident.
Rents are low for the same reason that housing is so expensive.



> the difference between bank interest or moderate equity returns isn't going to make much difference


Well, welcome to the world of ZIRP and financial repression.
These days, there is no reason to expect interest rates (and thus fixed income returns) to keep pace with inflation (or, more correctly, cost of living).
That is what interest rate manipulation by all major central banks does.

The article linked above clearly shows negative wage growth for middle income consumers.
If anything, I consider that op. ed. article rather benign and PC.
The true effect on middle class consumers is a lot worse.
Most of such folks are not experiencing the true impact just yet, because of low rates.


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## Ihatetaxes (May 5, 2010)

HaroldCrump said:


> So you spend only 16% of your monthly disposable income on food?
> Really?
> I wonder what those StatsCan "economists" eat...must be eating dog chow.
> 
> I don't recall _ever_ spending as little as 16% of monthly income on food - even when I was single, living on one income with no kids.


I would estimate we are spending 6% of take home income on food for our family of 4 and we eat VERY well (but almost never at restaurants). Not a ton of processed food just a lot of veg, fruit and good quality protein that I turn into some great meals. Made the kids homemade waffles this morning before work (King Arthur Flour's yeast overnight batter recipe, awesome).

And if bacon was $15 a lb I would still throw it in the cart without caring. I only buy it once every two months as an unhealthy luxury but I make a mean carbonara and once or twice a year I get a craving for it that cannot be satisfied without a big pot of baconny, eggy, cheesy deliciousness....


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## HaroldCrump (Jun 10, 2009)

Ihatetaxes said:


> I would estimate we are spending 6% of take home income on food


Well, I guess it depends on the income ;o)
Food has inelastic demand (within reason) and more or less a fixed cost item rather than purely discretionary.
Someone making $10K a month probably doesn't eat a whole lot more/better than someone making $2K a month.


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## brad (May 22, 2009)

HaroldCrump said:


> More inflation updates:
> 
> *Bacon prices in Canada are nearly 27 per cent higher today than they were a year ago.*
> 
> ...


Are all these examples of true inflation or could some be examples of temporary price increases? For example, a bad growing season has caused a sharp increase lately in the price of almonds. I notice because I eat a lot of almonds. But that doesn't mean I'll necessarily be paying higher prices next year. There have been temporary price jumps in other food items like rice and corn in recent years due to weather-related issues or competing demand from the biofuels market. I think you have to separate out single-year price increases from inflationary increases, although teasing out all the causes of any given price increase is probably challenging (lots of factors at play, including transportation and fuel costs, weather, etc.).


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## HaroldCrump (Jun 10, 2009)

brad, where food and energy is concerned - _there is always something_.
A crop disease, a hog virus (in this case), a drought in the Midwest (as in 2013), a fruit virus (remember the OJ problem a couple of years ago) or (going further back) mad cow disease, etc.

Regarding energy, there are a variety of geo-political issues that cause prices to increase.
Add incompetent govt. energy policy on top of that, and/or tax-grabbing, and we have perfect conditions for constant inflation in these essential consumption items.

Anyhow, I believe this most recent spike in inflation is caused by the deliberately weakened Canadian $.
We have gone from par and slightly above par down to 90c. - 91c. within a matter of months.

BOC's Poloz is promising consumers that this *spike in inflation is temporary*.
Yet, at the same time, he is saying the CAD$ is over-valued and actively pursuing a policy of weakening the $$.
Ha ! speak of eating their cake and having it too.
A country that imports the vast majority of its consumer goods cannot hope to significantly weaken its currency and not have inflation rise.

No, on the contrary, it is my belief that this is precisely what the BOC wants - higher inflation, weaker CAD$, low interest rates - all resulting in (supposedly) higher nominal GDP growth.
In other words, events are playing out exactly as intended/planned.


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## NorthernRaven (Aug 4, 2010)

It is the Consumer Price Index, not the HaroldCrump Price Index. I'd also be wary of assuming the basket weights are intended to directly translate to saying things like "x% of disposable income for a basic/average/median household". But aside from that, one should be very careful when dealing with statistics. Our inbuilt numerical intuitions tend not to mesh well with them, unless one has had a bit of practice in thinking about weighting, effects over time, and so on. The CPI basket is not designed for every use, and may not be ideal for those that it is designed for, and reweighting can sometimes lag major shifts. You may not buy a new fridge or stove or power tools this year, but a certain number of your neighbours will. And even setting aside basket issues, if income doesn't rise with prices, obviously that results in negative wage growth for those so affected.

Checking the CPI (2002=100), for bacon, the 2013 index (116.7) is actually lower than the all-items headline number (122.8) and all food (132.4). Bacon was actually running just a touch under average CPI inflation over the last decade - aside from general pressures on food/meat costs, the story notes that the pork industry experienced high losses from disease recently. 

As for food costs, again, people's choices and replacements will vary, but the CPI basket is weighted based on expenditure surveys and other things, not alien cookbooks or fever dreams of starving shipwreck survivors, and will have a decent footing in reality. See things like the "Market Basket Measure of Low Income" and the "National Nutritious Food Basket". A really quick Google turns up that Nutritious Basket costing $219.69/week for a family of 4 in Edmonton [man (31-50 years), woman (31-50 years), a boy (9-13 years) and a girl (4-8 years).


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## gt_23 (Jan 18, 2014)

SkyFall said:


> When you are holding cash, up to what point does inflation starts to bother you? Assuming inflation in Canada is around 2.5%, up to what amount of cash you would ''park'' it to try to minimize the effect of inflation on your cash?
> 
> I mean if you have $1000 and do know what to do with, do you really care about inflation? it's $25 you are losing.... but on $100k it's different....
> 
> So up to what point for you guys?


It should only be of serious concern when the inflation rate is greater than the growth rate. Even if you are loosing purchasing power on your "old savings," as long as you are participating in the economy (i.e. as a worker, investor, etc.) the growth of your wages or corporate earnings on your investments will increase so your overall purchasing power keeps up with inflation.

If we get into a recession or depression situation (or inflation>growth for some other reason) then the risk to your capital probably justifies the sacrifice of purchasing power (by moving your funds into MM and GPs), otherwise there isn't much reason not to be almost fully invested most of the time, because if you're not, you are most certain to sacrifice both purchasing power and growth.


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## cainvest (May 1, 2013)

HaroldCrump said:


> I don't recall _ever_ spending as little as 16% of monthly income on food - even when I was single, living on one income with no kids.


Though I wouldn't want to do this but ... even if I ate fast food every day (frugally mind you) I wouldn't come close to 16%. I only eat twice a day, lunch and supper, so this makes it real easy. Just a quick example,

Lunch: BK King deal $5.65 (Pick any meal deal, normally they run ~$5)
Supper: McD's two McDoubles and small fry, water for drink $4.71
Home made coffee $1.25 a pot (just a guess likely lower in price).

So is that $354.10 a month 16% of your disposable income? 

Now keep in mind that I spend less than that example amount above making food myself, and thankfully eating much better food.


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## My Own Advisor (Sep 24, 2012)

Junk food costs about $400 a month above, as you have indicated. Eating well costs more that that, even for 2 people, at least in our house it does and we have a small veggie garden as well.


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## sags (May 15, 2010)

Food manufacturers have been playing games with consumers for years.

They don't raise the price..............they shrink the packaging.

When you used to buy a package of 15 cookies for 2.99.......the same cookies cost 2.99 for 10 cookies.

You pay the same.......but are buying less.

Wages aren't keeping up with the inflation that people encounter every day, every week, and every month.

Many people are earning less than they did before they lost their job in the recession, or before they retired and now have to return to work. Few people outside of the public service get regular wage increases anymore.........and they are in the bulls eye for chopping next. 

We can all get poorer together.......if that is the goal.

Look around at all the "temp agencies". Their "cut" comes directly from the employee salary. The company may pay the same wages......but the employee doesn't get it. A plethora of temp agencies doesn't signify growing wages......exactly the opposite.

I would trust the Harold Crump index long before I would trust Stats Canada's politically manipulated statistics.

Economists worry about the dreaded "deflation".

Assets keep rising......utilities keep rising........food keeps rising........but wages remain the same.

Looks to me like we are already there.


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## cainvest (May 1, 2013)

My Own Advisor said:


> Junk food costs about $400 a month above, as you have indicated. Eating well costs more that that, even for 2 people, at least in our house it does and we have a small veggie garden as well.


One of my lunch staples is a ham sandwich with cheese, lettuce and tomato .. sometimes have a granola bar with it. The sandwich is probably around $2.50 to make, add another 0.75 for the granola bar. Another would be tuna, mayo and lettuce and would be even cheaper, maybe $2.

BTW, my ham went up from $7 to $10 a kg in the past few months ... really not much of an impact on my income for lunches.


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## NorthernRaven (Aug 4, 2010)

Statisticians being brighter (and generally more impartial) than random internet cranks, they would actually take into account any change in package size for the hypothetical cookies. And in general Canada is widely noted for the quality of its statistical agency, despite recent Harper shenanigans with the Census.


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## gt_23 (Jan 18, 2014)

NorthernRaven said:


> Statisticians being brighter (and generally more impartial) than random internet cranks, they would actually take into account any change in package size for the hypothetical cookies. And in general Canada is widely noted for the quality of its statistical agency, despite recent Harper shenanigans with the Census.


Self-reported household survey data is not as reliable as other forms. I think most statisticians would prefer less high quality data to more low quality data.


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## HaroldCrump (Jun 10, 2009)

cainvest said:


> Lunch: BK King deal $5.65 (Pick any meal deal, normally they run ~$5)
> Supper: McD's two McDoubles and small fry, water for drink $4.71
> Home made coffee $1.25 a pot (just a guess likely lower in price).
> 
> So is that $354.10 a month 16% of your disposable income?


If you are not going to live/eat like that, what does the example prove?

Cans of Unico dried beans are $2 at Wal-Mart.
You can easily make 3 meals out of one can - that's $2 a day, about $70 a month, incl. taxes.
$70 is probably less than 1% of your monthly income.

That doesn't prove anything.


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## Spudd (Oct 11, 2011)

How do you define "disposable income"? Is it take-home pay, or is it after rent/mortgage have been paid? Or something else?


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## RBull (Jan 20, 2013)

HaroldCrump said:


> So you spend only 16% of your monthly disposable income on food?
> Really?
> I wonder what those StatsCan "economists" eat...must be eating dog chow.
> 
> ...


It would be interesting to do a little survey on here. We have tracked grocery spending off and on for many years usually 12 months at a time. Our current expenditure on food (2 people) is about 16% factoring only my wife's DB net pension. With our investment/savings income this works out to about 7% of net income. When we were working in the peak of our careers our expenditure on food was about 4% of our net incomes. We eat very well, but also have a large vegetable garden for the last 2 years (have to give away a lot).


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## brad (May 22, 2009)

RBull said:


> It would be interesting to do a little survey on here. We have tracked grocery spending off and on for many years usually 12 months at a time. Our current expenditure on food (2 people) is about 16% factoring only my wife's DB net pension. With our investment/savings income this works out to about 7% of net income. When we were working in the peak of our careers our expenditure on food was about 4% of our net incomes. We eat very well, but also have a large vegetable garden for the last 2 years (have to give away a lot).


It's about 10% of my net income for us (I buy nearly all our food, so it probably makes sense to track it as a percentage of only my net income not total household net income), but as Harold pointed out above it all depends on income. Therefore I don't think comparisons will be very informative. Someone who makes $1 million per year might spend 0.08% of their income on food, while someone who makes $10,000/year might spend 50%.


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## cainvest (May 1, 2013)

HaroldCrump said:


> If you are not going to live/eat like that, what does the example prove?
> 
> Cans of Unico dried beans are $2 at Wal-Mart.
> You can easily make 3 meals out of one can - that's $2 a day, about $70 a month, incl. taxes.
> ...


Well it shows that even if you don't want to make stuff yourself you can likely spend less than 16% of your disposable income on food.
Also, in a another post, I mentioned that making the food myself is actually cheaper than eating that fast food so it's easily possible for anyone with a modest income to be below the 16% IMO.

Now if you are eating Rib eye or T-Bone steaks many times a week and/or expensive organic fruits/veggies, ya 16% isn't likely enough, but that's your choice.


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## HaroldCrump (Jun 10, 2009)

cainvest said:


> Well it shows that even if you don't want to make stuff yourself you can likely spend less than 16% of your disposable income on food.


Whether you prepare your own food or not has nothing to do with the cost of ingredients.
Fresh fruits are more expensive that buns & fries (i.e. typical fast food), even though the former requires no preparation while the latter requires a lot of preparation, incl. wages, rents, etc.

Fruits are even more expensive out of season, when they have to be shipped across continents.
That is where artificial inflation (such as caused by a weakening domestic currency) comes into play.



> Also, in a another post, I mentioned that making the food myself is actually cheaper than eating that fast food so it's easily possible for anyone with a modest income to be below the 16% IMO.


It is the cost of ingredients, unless you are accounting for imputed labor cost.
If you account for that, and you make $500K a year, then it is cheaper for you to eat at a 5* restaurant every day of the week.
But if you make $10/hr., then yup, it is cheaper to cook your own food.



> Now if you are eating Rib eye or T-Bone steaks many times a week and/or expensive organic fruits/veggies, ya 16% isn't likely enough


It is clear that real wages are going down for the middle classes.
We have evidence from the very same StatsCan.
Therefore, at some point (if not already) food costs will become 16% of income.
If you aren't there yet, hang in there - you will soon be.


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## Nemo2 (Mar 1, 2012)

http://cnsnews.com/news/article/ali-meyer/price-beef-and-bacon-reach-all-time-high



> The price of beef and bacon hit its all-time high in the United States in June, according to data released Tuesday by the Bureau of Labor Statistics (BLS).


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## cainvest (May 1, 2013)

Getting back to your point of a single person having trouble of staying below 16%, at my current level I'd need a take home pay of only 26K a year to stay just below 16% and that is without really trying. I do buy stuff on sale but don't do coupons or anything so I could likely lower my costs even more but I don't need too. As for fruits and/or other seasonal items, shop smart and buy when in season or grow your own if possible.

As for the future and being middle class, I'll never see my food costs rise to 16% let alone above 8% and I'll be eating very well the whole time.


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## HaroldCrump (Jun 10, 2009)

% of monthly income allocated to food costs is one metric.
The rise in prices of food is another metric.
For someone spending less than 8% of income on food, a 10% rise in food prices YoY may not be a big deal at all (as I said above, someone making $100K cannot eat 100% more/better than someone making $50K).

It is well known that rise in the price of essentials - esp. food and energy - disproportionately impacts lower and middle income consumers.
And rise in food prices is one of the most important concerns at this time (along with energy).


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## Beaver101 (Nov 14, 2011)

cainvest said:


> Getting back to your point of a single person having trouble of staying below 16%,* at my current level I'd need a take home pay of only 26K a year to stay just below 16% and that is without really trying. *I do buy stuff on sale but don't do coupons or anything so I could likely lower my costs even more but I don't need too. As for fruits and/or other seasonal items, shop smart and buy when in season or grow your own if possible.
> 
> *As for the future and being middle class, I'll never see my food costs rise to 16% let alone above 8% and I'll be eating very well the whole time.*


 .. what works for your version of being middle class at $26K with 8% for food expenditure may not work for some other level(s) of middle class. And it does not dispute that food prices are climbing much higher than the imaginary rate of inflation these days ... the average loaf of WonderBread bread (not on sale) is $3.00 these days ... 3 years ago ... about $1.50. Of course, you can buy a loaf of bread (not on sale) for half price, if you're willing to go with days old too.


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## HaroldCrump (Jun 10, 2009)

NorthernRaven said:


> I'd also be wary of assuming the basket weights are intended to directly translate to saying things like "x% of disposable income for a basic/average/median household". But aside from that, one should be very careful when dealing with statistics. Our inbuilt numerical intuitions tend not to mesh well with them, unless one has had a bit of practice in thinking about weighting, effects over time, and so on. The CPI basket is not designed for every use, and may not be ideal for those that it is designed for, and reweighting can sometimes lag major shifts. You may not buy a new fridge or stove or power tools this year, but a certain number of your neighbours will. And even setting aside basket issues, if income doesn't rise with prices, obviously that results in negative wage growth for those so affected.


I am not disagreeing with you - I understand you are trying to rationalize the methodology.
My point is that the CPI reported by StatsCan (and used by the BOC for several purposes) is completely useless for consumers and households as a measure of their cost of living.
Regardless of what the *intent * of these metrics may be, the data is often _*interpreted *_as representing "inflation" (it does not), and/or representing the rise in cost of living.
As a metric for either case, it is useless for consumers and households.

This is the same reason that RRBs are completely useless to individuals (esp. retirees) as an inflation-protection investment vehicles for their personal portfolios.
Many retail investors buy RRBs (or ETFs of RRBs) in the belief that it will "protect" their portfolios against loss of purchasing power caused by inflation.
It does not.
Anyone (esp. retirees) using RRBs to protect their monthly income against rise in the cost of living are chasing shadows.

From the consumers perspective, the whole CPI metric is *** backwards - it is precisely the food & energy prices that matter the most from a cost of living perspective rather than appliances, electronics, and other items.

The calculation of housing costs is also completely hopeless.
It is not correct to subrogate imputed rents as a proxy for housing costs.
The _final_ cost of housing including the fully amortized interest must be considered.

Perhaps the way CPI is calculated has some meaningful information for the Bank of Canada (and I question that as well), but for average retail consumers, households, and investors it is completely meaningless.
If _this_ is what 2.3% inflation is like, well then, the target inflation needs to be 0.2%, and not 2%.

Fundamentally, there is no reason for a capitalist economy to exhibit nominal inflation.
In fact, every force inherent in capitalism is deflationary.
Inflation is an arbitrary effect artificially generated by central banks and policy makers to continuously counteract the inherently deflationary nature of a market-driven, capitalist economy - but let's not get into that ;o)


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## cainvest (May 1, 2013)

Beaver101 said:


> .. what works for your version of being middle class at $26K with 8% for food expenditure may not work for some other level(s) of middle class. And it does not dispute that food prices are climbing much higher than the imaginary rate of inflation these days ... the average loaf of WonderBread bread (not on sale) is $3.00 these days ... 3 years ago ... about $1.50. Of course, you can buy a loaf of bread (not on sale) for half price, if you're willing to go with days old too.


I'm not saying prices are not on the rise, sure they are for a number of things, I just don't see all this doom and gloom for the middle class some seem to focus on. When I look at the middle class I see many people living well beyond their means (in debt), not because they have to but because they want too.
Some of these recent increases will likely impact those with lower income, no doubt about that.

Also, if the CPI doesn't match up to your "own basket" due to what you spend/buy or your level income, hey ... track your own basket. I think it's a useful number but I don't pay much attention to it, especially for short term changes.


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