You’re not imagining things. It really is a more expensive world out there. 

On January 22, 2022, inflation in Canada saw a 5% increase for the first time since 1991. Couple that with rising interest rates and the unique economic challenges that come from navigating a pandemic, and that’s a recipe for people feeling the pinch—both in their wallet and with their mortgage rate.   

So what do increased costs (and other economic changes) mean for your average Albertan? And is there anything that can be done to lessen the impact?

What is inflation?

Inflation happens when there’s a steady rise in the average level of prices over time. 

It’s not unusual to see inflation in any economy. In fact, the Bank of Canada works to keep inflation at a two per cent rate. A high rate of inflation can have a serious impact on consumers, though. Supply chain issues, overexposed demand for product and agricultural challenges have all been recent factors in inflation surges.

Here’s how inflation impacts Albertans

It’s spoken about in broad terms, but the impact of inflation can be felt in a lot of specific ways. Here are a few segments of your spending where inflation can be felt:

• Gas
• Transportation
• Utilities
• Food
• Clothing
• Health and personal care
• Housing

From your grocery bill to your gas tank, inflation brings with it increased prices on a lot of important purchases. Among the places where you might see numbers rising is with the interest rate on a mortgage. When inflation is up, the Bank of Canada may decide to increase the interest rate in a bid to help bring inflation down. So when prices rise during a period of inflation, it’s not unusual to see interest rates go up too as a spinoff of (and solution to) this economic change.

Changes in mortgage interest rates explained

Interest rates for a mortgage traditionally have two overall formats. There’s a fixed mortgage rate and a variable mortgage rate.

You may have guessed that a fixed mortgage rate is one that stays the same throughout the term of your contract. These rates are usually higher than their variable counterpart, but offer the security of the same rate.

Variable rates offer the reverse. These rates tend to be initially lower than fixed rate mortgages, but are subject to change based on economic conditions. The rise and fall of interest rates can be hard to predict, so there’s no guarantee your interest rate will remain the same. 

Both rate formats have their pros and cons depending on your needs—it’s just important to know that changes in interest rates will have a direct impact on anyone with a variable rate mortgage.

The costs go beyond just the mortgage payment because an increased interest can also mean increased costs for things like debt payment associated with this important purchase. Inflation creeps up on consumers so it can be easy to overlook at first, but recognizing its impact is a big step. 

How can I limit the impact of inflation on my life?

As you’ve seen, inflation can creep into your life in forms big and small.

An important element to keep in mind is that increased inflation is not a guarantee to see matching growth in wages. Historically, there has been a large gulf between the growing cost of living and an increase in pay. This trend was bucked a bit during the COVID pandemic, with wage increases occurring in some sectors, but it’s unclear if this development will continue. 

The key to facing inflation is recognizing how increased costs of goods, services and contracts could be impacting your budget. There are some items (like gasoline) where it’s easy to spot price changes, but these costs can eat into groceries, bills and nights out too. It’s about readjusting your budget and spending to reflect today’s economic climate. Resources like our budget worksheets can help you prioritize what matters.

Where can I get personalized advice on how to navigate rising rates and costs?

At ATB, we’re built to help Albertans. Count on us to provide answers, expertise and advice tailored to your specific needs. We’re here so you can feel confident banking in any situation.