In this week’s economic update, we examine the recent inflation measures in both the U.S. and Canada, what the implications are for this easing of inflationary pressures, and why prices and cost of living expenses may continue to remain high.
November is Make a Will Month and to celebrate, our in-house wealth planning expert Elvis Henrique is back to share some insight on when you should be re-visiting your Will and your estate planning too.
It is also Financial Literacy Month and we’re sharing some great material to help speak to the next generation about their finances and core concepts to help them build sound financial management skills.
Economic Update
Thus far, the month of November is proving to be one of the stronger periods of the year with global equity and bond markets notably higher. Those gains have made up for some of the weakness witnessed during the first part of the autumn. There may be a few factors that have driven the strength of late, but none are more important than inflation trends, which continue to show signs of abating.
Inflation measures and U.S. results
The most recent U.S. inflation reading, for the month of October, was released over the past week. These days, all sorts of inflation metrics tend to get measured. But generally, there is a “headline” inflation figure that includes all categories (goods and services), and a “core” figure that removes more volatile areas such as energy and food. Both came in below expectations. More importantly, both suggested the easing in inflationary pressures continues to progress. A year ago, the year-over-year figures stood at nearly 8.0% (for headline) and nearly 6.5% (for core). Today, those figures stand at close to 3.2% and 4.0%, respectively.
Canadian inflation easing
On the Canadian front, the inflation data has been telling a similar story. The figures for October will be released over the next few days. However, the figures for September, released nearly a month ago, showed an easing in inflation trends which provided some relief to investors who grew a bit antsy after a brief re-acceleration in inflation during the summer. The Canadian headline and core figures as of September were both under 4.0%, meaningfully lower than the 6.5%-7.0% range witnessed a year ago.
Housing driving overall cost pressures
Beneath the surface, there are some pressures that remain rather intense in Canada. For example, shelter, which is the largest component of the Canadian CPI (Consumer Price Index) at just over a quarter, continues to see notable pricing pressures. That is primarily because mortgage interest costs are up nearly 30% year over year and have been the biggest contributor to Canadian CPI of late. It’s hard to imagine that moderating any time soon with the number of Canadian households expected to have to refinance their homes over the months to come. This suggests that one of the meaningful drivers of year over year inflation in Canada may remain elevated for some time to come.
Implications of cooling inflation
The key takeaways with respect to inflation trends differ depending on one’s perspective. As a consumer for example, falling inflation does not necessarily mean falling prices. Instead, it means that prices are not increasing by as much as they were previously. That’s an important distinction because consumers may still be faced with a relatively high cost of living compared to years ago where prices for nearly everything were significantly lower.
From an investor’s perspective, falling inflation is instead a meaningful tailwind because it raises the odds that central banks such as the U.S. Federal Reserve and Bank of Canada may not have to tighten financial conditions further by raising interest rates to fight off inflationary pressures. That is largely what has transpired this year as a fall in the rate of inflation has changed investors’ expectations around interest rate hikes and resulted in less volatility this year compared to the year ago period when inflation was accelerating.
Summary
Regardless of persona, it is important to distinguish between the end of interest rate hikes and the beginning of interest rate cuts. For the latter to occur, a bigger fall in the pace of inflation or emergence of broader economic weakness would be required. Those scenarios are possible outcomes as we start to think of what conditions may look like at this point next year.
Will and Estate Planning - when should your review or update?
When was the last time you looked at your Will or estate plan?
Regularly reviewing your Will and estate plans are a critical component to ensuring the accuracy of your financial legacy. However, there are some life events or changing circumstances that may make reviewing your Will and estate plan even more critical.
Elvis Henrique, our in-house wealth planning expert, breaks down some of the life events or stage changes to be mindful of below:
Most legal professionals recommend reviewing your estate plan every three to five years or any time you experience a major life event. A life event refers to any significant change in your life such as marriage, divorce, birth of a child, death of a spouse or material changes to your financial position, to name a few.
In this article, we’re going to highlight a few important examples our team has often encountered:
Starting, buying or selling a business
Buying or selling a business should be a trigger for you to review your wills and ensure your estate planning affairs are in order.
If you’ve sold your business, it may be a good idea to update your Wills to remove any bequests of corporate shares or business assets that are no longer personally owned by you to avoid any ambiguity or confusion.
If you’ve purchased a business for the first time, you’ll want to consider how the management and ownership of the business should be transferred if something happens to you and thus you may potentially require a separate Will. You may also consider the potential tax liability related to your business that your heirs or estate may face upon your death and whether any steps should be taken to minimize this potential liability.
Entering a new relationship
A common misconception is that your assets will automatically pass to your surviving spouse or common-law partner in the event of your death.
Generally speaking, if you haven’t properly documented your wishes with respect to how you want your estate assets to be distributed on your death through a valid Will or beneficiary designation, intestacy rules mean it’s possible that your spouse or common-law partner may not receive all your estate assets.
In some jurisdictions, outside of Ontario, marriage cancels any Will prepared by either spouse prior to the union (unless the Will is made in contemplation of marriage). In similar lines, many couples wish to appoint their new spouse or common-law partner as the beneficiary of their estate.
For these reasons, your Will and estate plans should be updated once you get married or enter a new common-law relationship.
Retirement
As you prepare to retire, your goals and needs are changing – this should trigger a review and update to both your financial plan, as well as potentially your Will and estate plans.
Some good questions to have include: is everything up to date? Are there ways to reduce costs, such as taxes and probate fees, at the time of your death? Are all your named beneficiaries current? Are you still comfortable with your choice of executor?
Expert advice
If you are encountering any of these life changing events or any other situation that could impact your financial planning, will, or estate planning needs, please reach out to our team to discuss. We always recommend consulting with a lawyer who specializes in Wills and estates, your financial planner, and your tax advisor to understand what makes the most sense for your specific situation.
We are always available to speak with you about your Will and estate plans – if you have any questions or want to learn more, please get in touch with us and we’d be happy to discuss these items with you and help you navigate the process of creating or updating your plans.
Six financial literacy principles for the next generation
A key piece to protecting your estate and financial legacy is ensuring that your loved ones are knowledgeable and well-prepared. Financial literacy is a core component to a successful estate plan, educating the next generation about investments, tax planning, and future financial needs.
As part of Financial Literacy Month, RBC has put together a short six-principle guide – a great starting spot for many to use to talk to their children or grandchildren about financial literacy and what they should know.
You can read the article here.
As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.
