The January Consumer Price Index numbers came in from Stats Canada and it seems like gasoline pushed inflation to 2.1 % year over year in January. A rate of 2.1% enters the Bank of Canada worrisome zone. Using the Bank of Canada’s measures things are not as worrisome. If you check the Bank’s site, their numbers show below 2.0% which is in their “acceptable” zone.
Highlights for January
Main contributors to the 12-month change in the CPI, Main upward contributors:
- Gasoline (+20.6%)
- Purchase of passenger vehicles (+3.8%)
- Homeowners’ replacement cost (+4.3%)
- Natural gas (+15.6%)
- Food purchased from restaurants (+2.3%)
Main downward contributors:
- Fresh vegetables (-15.5%)
- Fresh fruit (-10.8%)
- Meat (-1.7%)
- Bakery products (-3.2%)
- Cereal products (excluding baby food) (-5.3%)
Great news there in that fresh fruit and veggies are lower in price. We should all be eating a bit more healthy this month! The very bad news is Gas and Natural Gas prices sky-rocketing. Might want to turn the furnace down a little, and look at those hybrids again?
Historical Electricity Prices?
Stats Canada added a fun historical section, and this month, electricity prices.
Electricity has maintained approximately the same basket weight for the past 30 years. Since the basket update in 1986, the basket weight for electricity has ranged from 1.93% to 2.77% of the all-items CPI, and averaged 2.43%.
Given how much electricity prices have shot up in Ontario, wonder if this remains true?
Graph of the Month
CPI with and without gasoline prices is always an exciting graph to check out.
CPI or Inflation with and without gasoline included
2017 Inflation Discussion
So far 2017 has only one discussion:
RRSP season is slowly coming to a close, if we are to believe the advertising campaigns from the banks and mutual funds. RRSP season is actually all year round, however March 1, 2017 is the deadline for contributing to an RRSP for the 2016 tax year. It is bad planning (in my opinion) to buy RRSPs at this stage of the game, but if you find money (and don’t have debt to pay off), it is an OK place to put found money. I have over the years written plenty of articles on RRSPs, and here are a few for you to read:
Not an RRSP Season Fan?
Image used without permission of JK Rowling or Warner Bros.
If this is RRSP season, remember that it is tax season as well. For folks in Ottawa who work for the Federal Government, there are tax problems. Over 50,000 have had issues with their T4 slips from the new Phoenix pay system. Ironically the CRA (who are also part of the Phoenix Pay system) say that there will be no dispensations for them. The CRA was kind enough to put up an FAQ Page for Tax Questions.
The ultimate concept in the #Fakenews? The status bar and how long it says it will take to install your software (several minutes, my arse!)
My Writings for Week Ending February 24th
Given we are in the RRSP Season, I had my own poke at the topic, which I borrowed from a discussion I had with Preet B. and Michael James about how so many folks seem to forget that an RRSP is a Tax Deferral Savings Plan. How many times have you heard someone tell you how much money they have in their RRSP and never mention the taxes they might have to pay on that sum?
A Money Thought
Kerry from Squawkfox is getting tired of being up sold services at the banks by tellers (and ATMs)
[click to continue…]
I think if the RRSP was named the Tax Deferral Savings Plan it would clarify to folks how it all works. Most folks simply think of it as a Tax Avoidance program, but like death, there is no hiding from taxes.
The government rarely wants you to get something Tax Free (with the exception of the Tax Free Savings Account (TFSA), and a few other programs). When you get a refund for your RRSP deposit, all you are doing is deferring paying tax on your deposit. You will pay tax on the money in your RRSP, when you withdraw it. This is why I am calling it the Tax Deferral Savings Plan. Remember there are tax deferral advantages possible, but you must realize that is what the RRSP does.
The Tax Ramifications of a Tax Deferral Savings Plan
Some of the underlying assumptions for your RRSP are simple. When you withdraw money from your RRSP you will:
- Be in the same or lower tax bracket, thus your tax deferral is a net positive (if you have kept your refund from when you deposited into your RRSP).
- You have money saved to pay the taxes on the withdrawal.
This is where folks tend to get tripped up. They look at their RRSP balance and see the entire value ($X) , when in fact the actual value is ($X – Income Tax). How much income tax? Depends on when you take the money out, and how much you withdraw. Take it all out at once and you pay the most tax on that withdrawal.
Assuming you are making less when you are retired you are withdrawing at a lower tax rate (hopefully). If you have a higher tax rate when you are retired, you will pay more in tax than you got as a refund.
A dangerous idea is using your RRSP as an emergency fund. While it might work if you are unemployed (and have no income), using it to pay for a large purchase might give you a much bigger tax bill.
What to do with Refund?
If you put money into your RRSP (or tax deferral savings plan) and you receive a refund, what should you do with it?
- If you spend the refund, you need a plan to recover it in some fashion. You must be able to pay the taxes on your deposit.
- Keep in mind the actual value of your RRSP deposit
- $X deposit gives $N refund, thus you will need approximately $N in tax payment money to withdraw all of $X again.
- Put the refund into the RRSP, problem solved, and you get another refund next year (repeat).
- Refund into TFSA, let it grow there, thus you have the Tax Money. An added bonus is you are using it to grow you nest egg (tax free).
- Hope your RRSP investments grow enough to cover $N worth of taxes due on the initial deposit.
Your RRSP Balance is Before Tax Money
Remember this, you must pay tax on your RRSP withdrawal (with a few exceptions), plan accordingly!
I was saddened to hear of the death of Stuart McLean, host of the Vinyle Café. That radio show was truly a slice of Canadiana , and the good nature and happiness in the stories told will be sorely lost. Now is a time when we could use more of Stuart’s stories, and less of the other things on the radio.
Mr. Cardinal Confirms, Winter Sucks
Really not sure whether this Joe Trudeau chap really has the chops to be PM.
For those who have not watched the 5th Estate piece on “Betrayal of Trust” outlining the 220 lawyers disciplined over the past 6 years for misappropriating over $160M from clients, well worth watching. Do you trust the folks you entrust with your money?
So far Ottawa has had snow pretty much every day in February (except one), so we are quite the winter wonderland. As can be seen by the cardinal on my birdfeeder, no one seems that happy about all this snow.
For those lovers of Monopoly out there, note the passing of the Thimble as a piece for a player, it will be dropped in future Monopoly sets. I don’t know many folks who will miss it (my Mum used to like to be the thimble).
My Writings for Week Ending February 17th
We did have a Surprising Job Picture in Canada in January, with jobs created when none were expected. The economy continues to create part-time jobs, but maybe that is what the economy needs?
A Money Thought
We need more kids asking for personal finance education at schools!
👇 For more great financial articles from this week click here 👇
A surprising job picture from the Canadian Economy grew more jobs in January (2017), according to Stats Canada. This was unexpected by most economists, so a pleasant surprise (somewhat).
What Kind of Jobs ?
Surprising Employment Story
(From Metropolitan Museum of Art Collection)
The unfortunate part of this story is that the economy is creating more part-time jobs (full-time job numbers are virtually unchanged). Why is this economy creating part-time jobs, or is that what is needed?
There is an argument put forward that as the population ages, maybe part-time jobs are what the older folks want? It can’t be that young folks want to have many jobs, with little or no benefits, can it?
The telling statement from the article is the following:
Despite little change in January, part-time employment was up on a year-over-year basis (+190,000 or +5.6%). In January, 19.6% of employed persons worked part time, compared with 18.8% the same month a year earlier.
Why a growing part-time work force ? This would be a very interesting report if I could find it somewhere.
Unemployment & Employment Graphs
Employment & Unemployment Seasonally Adjusted