High inflation is already upon us. As BBC News reported, the U.S. saw consumer prices jump 4.2% in the past 12 months. Price surges for certain goods can be even more ridiculous. Second-hand car prices rose 10% in April versus March.
A part of that had to do with the shortage (and consequential price rise) in basic materials like steel. The situation is similar for other raw materials like copper and lumber.
We can say something similar for Canada as well — higher inflation and higher raw material costs. The annual inflation rate was 3.4% in Canada.
The Federal Reserve aims for a long-term inflation rate of 2%, as does the Bank of Canada. The Federal Reserve explains very well here how a stable rate of 2% helps with keeping maximum employment and consumer price stability. It further clarifies that an extended period of low inflation is likely to lead to a period of higher inflation (triggered by monetary policy), which is what we’re seeing now in both countries.
At the very minimum, Americans and Canadians need to ensure their savings are earning at least 2% a year from interest income. Of course, we can do better than that with dividend stocks.Read More