In This Edition
December CPI inflation comes in hotter than expected
Why official inflation is likely understating real cost pressure
How to reduce risk and position for growth in an inflation-prone world
December CPI & Inflation
Canada’s December CPI report showed inflation rising 2.4% year-over-year, slightly above analyst expectations of 2.2%.
On a monthly basis, inflation fell 0.2%, largely due to lower gas prices. However, this decline masks an important detail:
Food prices rose 5% year-over-year
Excluding gasoline, inflation was closer to 3%
Markets took the report calmly. Bond yields and fixed mortgage rates remained stable, suggesting investors saw this as confirmation of a slow-cooling inflation trend — not a decisive victory.
What the Data Is Not Saying
This is where the disconnect shows up.
The Canadian dollar appears to be weakening faster than CPI suggests. We see it clearly in:
Food
Communications
Transportation
Everyday services
Oil prices have fallen, yet gasoline prices are not dropping in lockstep — a sign that currency weakness and structural costs are offsetting commodity relief.
More importantly, we’re seeing price inflation everywhere at once:
Stocks remain expensive
Gold, silver and many commodities remain elevated
Bond yields are high
Government deficits are expanding
Global real estate remains costly
When all categories rise together, it’s not just inflation — it’s currency erosion. The dollar is buying less of everything.
This environment puts long-term upward pressure on interest rates, even if short-term inflation data looks manageable.
What This Means for Canadians
Your cost of living may continue rising faster than official inflation
Cash loses purchasing power quietly
Debt becomes riskier if mismanaged — but more powerful if structured correctly
Long-term planning matters more than short-term rate predictions
How to Reduce Risk & Position for Growth
1. Own a Diversified Asset Base
The strongest defense against inflation is owning productive assets, not holding idle dollars.
This includes:
High-quality, cash-generating companies
Real estate
Limited exposure to gold and bitcoin
A simple all-equity ETF structure like XEQT or VEQT makes this easy, with low fees and strong risk-adjusted returns. Small exploratory allocations to gold or bitcoin can complement this — but should not dominate the portfolio.
Be careful not to over-allocate:
Gold and resource exposure already exists inside Canadian equity markets
Bitcoin is highly volatile
Over-customization often increases risk, not returns
Maintaining optionality matters. Holding some short-term money market exposure allows you to act when better opportunities appear — without selling long-term assets at the wrong time.
2. Understand the Risk of Bonds
Bonds are not equities. They are dollar-denominated debt instruments.
In an environment of:
Persistent deficits
Currency erosion
Higher long-term inflation risk
Bonds may lose purchasing power over the medium to long term, even if they feel “safe” on paper.
3. Strategically Manage Debt
Inflation quietly erodes debt in real terms.
Example:
If inflation runs at 4%, a $500,000 mortgage effectively loses about $20,000 of real value per year — assuming your income and assets keep pace.
However, debt only works in your favour if:
It’s predictable
It’s affordable
It’s paired with growing assets
This is why a 5-year fixed mortgage can be a strategic tool right now. Markets are signalling upward long-term rate pressure as a base case. Locking in provides:
Payment certainty
Protection against rate shocks
The ability for inflation to quietly work in your favour
💸Financial Market Snapshot
TSX Composite: Slightly higher — supported by resources and financials
S&P 500: Stable — likely to open lower on Tuesday Jan 20
Gold: Rising — reflecting currency and geopolitical tension
Bitcoin: Down on geopolitical uncertainty and higher market risk
Bond Yields: Stable — markets see inflation moderating, not defeated
Mortgage Rates: Flat — lenders waiting for clearer rate direction
🏡Bottom Line
Inflation may be cooling in the data, but the cost of living tells a different story. This isn’t just about prices rising — it’s about the dollar buying less.
Canadians who focus on:
Productive assets
Thoughtful diversification
Smart debt structure
will be better positioned.