Inflation may be soaring now, but FP Canada’s latest projections say financial planners should assume an inflation rate of 2.1% for long-term planning.<\/p>\n
FP Canada and the Institut qu\u00e9b\u00e9cois de planification financi\u00e8re (IQPF) published their 2022 Projection Assumption Guidelines on Thursday<\/a>. The guidelines are designed to help financial planners make projections for 10 years or more.<\/p>\n The latest guidelines come as inflation is at its highest in decades. The annual rate of inflation in Canada hit 6.7% in March, forcing the Bank of Canada to play catch-up with a 50-basis-point rate hike earlier this month<\/a>.<\/p>\n However, the financial planning associations advised against adjusting the projected inflation rate to reflect the high current reading. Rapidly rising inflation is unlikely to continue for 10 or more years, the report said, and altering the inflation projection would affect the other assumptions for interest rates and investment returns.<\/p>\n “While, under current conditions, it may be tempting to significantly change one assumption, it is unwise to do so given the correlation between classes,” it said.<\/p>\n The report included an addendum showing the consumer price index from 1997 to 2021. As of December 2021<\/span>, the consumer price index has averaged 2.32% over the last five years and 1.82% over the last 10 years.<\/p>\n “Inflation can show more marked movements in some shorter-term time frames,” the report said. “However, in looking at inflation rates over a longer period, it is noted that previous higher levels are not sustained for the long term.”<\/p>\n