Hidden Inflation in Vancouver, BC
A wise investor always considers three basic things. The first is the rate of return - the percentage that their money will grow. The second is the risk that comes with that investment. Third, are the cost of living fluctuations from year to year and how they eat into profits earned.
Interest rates have never been lower in Canada. However, the rate of inflation remains the same, at least on paper. There are factors that the banks do not take into consideration when assessing the cost of living in a city, however, and it is this hidden inflation that the prudent investor should weigh into their equation.
It's not the best time to leave money sitting in a bank account, because at 1%, while safe, it is losing money each year to the increased cost of living, which is calculated to be about 2.7% today.
This means that investors should look to mutual funds, bonds, stocks or buying something tangible such as a gold to maintain (and ideally grow) the value of their savings.
Vancouver is a completely different story, however. The Bank of Canada's index excludes some of the most volatile (and expensive components) fruits, tobacco, inner-city transportation, and mortgage interest rates. It also fails to get granular on the effect of the Vancouver housing boom.
The effects are noticeable. The seemingly small 3% increase can really add up. Compounded year after year, things will be 56% more expensive in just 15 years. In Vancouver, because of the housing boom, there has been a sharper increase than that. Think of rent and property values. They have almost doubled in that time.
There is a domino effect. Increased property value means a sudden inflation in building materials, labour, rent, and even restaurant prices as new wealth floods into the community, driving prices up.
Yet wages have not changed.
What does this mean for the average Vancouverite with student loans to pay, and bills to worry about? It's actually good news, although only slightly. The significance of the debt becomes lessened as each dollar owing becomes less valuable each year.
If you are paying 20% on a student loan, you can calculate that you are actually only paying 17% because of inflation. However, with proper debt consolidation you could have your payments almost half of what you are paying now. The lower you get your rates, the higher percentage of them that will get buffered by the rising cost of living in Vancouver.
Interest rates have never been lower in Canada. However, the rate of inflation remains the same, at least on paper. There are factors that the banks do not take into consideration when assessing the cost of living in a city, however, and it is this hidden inflation that the prudent investor should weigh into their equation.
It's not the best time to leave money sitting in a bank account, because at 1%, while safe, it is losing money each year to the increased cost of living, which is calculated to be about 2.7% today.
This means that investors should look to mutual funds, bonds, stocks or buying something tangible such as a gold to maintain (and ideally grow) the value of their savings.
Vancouver is a completely different story, however. The Bank of Canada's index excludes some of the most volatile (and expensive components) fruits, tobacco, inner-city transportation, and mortgage interest rates. It also fails to get granular on the effect of the Vancouver housing boom.
The effects are noticeable. The seemingly small 3% increase can really add up. Compounded year after year, things will be 56% more expensive in just 15 years. In Vancouver, because of the housing boom, there has been a sharper increase than that. Think of rent and property values. They have almost doubled in that time.
There is a domino effect. Increased property value means a sudden inflation in building materials, labour, rent, and even restaurant prices as new wealth floods into the community, driving prices up.
Yet wages have not changed.
What does this mean for the average Vancouverite with student loans to pay, and bills to worry about? It's actually good news, although only slightly. The significance of the debt becomes lessened as each dollar owing becomes less valuable each year.
If you are paying 20% on a student loan, you can calculate that you are actually only paying 17% because of inflation. However, with proper debt consolidation you could have your payments almost half of what you are paying now. The lower you get your rates, the higher percentage of them that will get buffered by the rising cost of living in Vancouver.
