One of the reasons for persistent inflation this year is that consumers keep paying the price for the stuff they want.
New vehicle at prices averaging $50,000? No worries. Restaurants with $40 entrees? Yes, please. House prices back above $700,000 on average across the country? You gotta pay to play. While there has rightly been a big focus on financially stressed households in the past year, the resilience of consumer spending has been noteworthy.
Consumer spending is now losing momentum, though. Retail sales in May and early estimates for June show almost no growth. Further evidence of more selective spending can be found in a story about a glut of electric vehicles that drew a big audience on the Globe and Mail website. The supply of unsold EVs on U.S. dealer lots in June was a hefty 92,000 vehicles, the equivalent of three months’ inventory and twice the industry average.
All the reasons why demand for EVs has stalled were covered in a recent discussion on Reddit’s Canada page. There are issues with range, with the availability of charging stations and the complexity of new vehicle technology and features. But cost is part of the story as well. Vehicle prices are high, and so is the cost of financing as a result of high interest rates.
A decline in consumer spending will restore some balance to pricing of the goods and services we buy. Inflation over the past 18 months has been attributed to supply chain interruptions and scarcity of manufacturing components like microchips, but there’s another angle on this. When companies raised prices on discretionary items, consumers went along in many cases.
When renovation prices soared, people still wanted new kitchens. When vehicle prices soared people paid up for new cars and SUVs that wouldn’t be delivered for a year. When restaurant prices jumped, people ate it up. The latest consumer spending tracker from RBC Economics showed continued strength in restaurant spending between April through June.
More cautious spending will weigh on the economy and potentially contribute to a recession. Still, it’s much-needed. The Bank of Canada will be more open to stabilizing and then lowering interest rates when it sees less resilience in spending. And, companies will have less power to raise or even maintain prices. The result could be more deals, more sales, more negotiating room and maybe even price reductions.
Earlier this month, Ford announced a nearly $US10,000 price reduction for the F-150 Lightning, an EV. Now, that’s what I’m talking about.
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Rob’s personal finance reading list
Enjoy life in password hell
The Canadian Bankers Association advises you to have different passwords for all your accounts, and not to use a password manager to remember them all for you. I interviewed a fraud expert a few years back who said he used a password manager, which is essentially a password-protected vault for all your logins and passwords. The lede for the column I wrote about that interview goes as follows: “Technology’s most epic fail of the past two decades is arguably that passwords are still being used for internet security.” Truer today than ever.
Pay down the mortgage or invest, 2023 edition
A debate over whether it’s more financially advantageous to use extra cash to pay down your mortgage sooner or invest. Today’s high interest rates make it difficult for investing to generate a better result.
Takeout pizza smackdown
Reviews of takeout pizza, still a reasonable value for families, from five national chains. Kudos to the reviewer for having strong views. There are one- and five-star ratings here.
How rising interest rates changed the world
A nicely done presentation by the Wall Street Journal on the financial, economic and political fallout from rising interest rates. The focus is on the U.S. Federal Reserve, but there was a similar rate increase in Canada and other countries. Not covered here is the impact on borrowers forced to pay dramatically more to carry mortgages and other debt. For more on this perspective, here’s some analysis saying affordability issues will persist, even as inflation eases.
Ask Rob
Q: If you come into a large chunk of money, is it better to invest it all at once or to spread it out over a couple of months?
A: Research shows a lump sum gives you the best result most often for long-term investing. But spreading it out pays off psychologically in that you limit the stress that comes from putting money into the market before a big pullback or crash.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
A history and overview of exchange-traded funds in Canada, home to the first ETF, and the first ETFs in a few different categories.
The money-free zone
Great career advice for young people from Barack Obama: “Just learn how to get stuff done.”
Watch this
This video blows up the silly idea some people have it’s not worth earning more if it puts you in a higher tax bracket.
ICYMI
- A homeowner splitting costs with a new partner is a financial, legal and romantic minefield
- What happens when your spouse receives an inheritance?
- The foods that are safe to eat past the best-before date
- Five calculators to help you plan your retirement
- Airlines increasingly using dynamic pricing for everything from luggage to legroom
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Why millennials and Gen Z are Alberta-bound for a more affordable life • Rising interest rates brought pain for new homeowners – and opportunity for house hunters • Why more Canadians are choosing to be child-free or delay parenthood • Love in the time of inflation: How to manage rising costs when dating • You're not bad at money – you're suffering from money shame • Retirement might look different for Gen Z and millennials. Here's how to plan for it • Recession-beating tips for the job market, housing, investing and the cost of life • Is the middle class dead for millennials and Gen Z?
- ✔️ The housing file: A house isn’t special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home down payment in Canada’s big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here’s how to time the eventual rollback of interest rates
- 📈 Investing: Canada's top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer's guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle
