WealthInflation (definition)
Inflation is the general, ongoing rise in the prices of goods and services. Over time it erodes the purchasing power of your money: $100 today buys less in 10 years. The Bank of Canada targets an inflation rate of about 2% per year.
Why it matters for your savings
Money sitting in a 1% account while inflation runs at 3% loses 2% of purchasing power a year. That's why investing (stocks, ETFs) is essential: aim for a return above inflation to grow your wealth in real terms.
The long-term effect
At 2% inflation, prices double in about 35 years; at 3%, in 24 years. Your retirement projections and FIRE number must account for inflation to stay realistic.
Frequently asked questions
What is the target inflation rate in Canada?
The Bank of Canada targets about 2% per year, within a 1–3% range.
How do I protect against inflation?
By investing for a return above inflation: stocks, diversified ETFs, and sometimes real assets. Cash loses real value.
Does inflation affect my retirement projections?
Yes, strongly. A serious projection states amounts in today's dollars and builds in inflation.
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