XEQT and Inflation: How Global Equities Protect Your Purchasing Power

I was standing in a No Frills last spring doing my usual weekly grocery run when I noticed something that made my stomach drop. Not the prices individually – I had gotten used to those creeping up. It was the total at the bottom of the receipt. I buy roughly the same things every week: chicken, rice, vegetables, eggs, bread, some fruit, a few basics. A couple of years ago, that basket came to about $150. I glanced at the receipt: $214.

Two hundred and fourteen dollars. For a week of groceries for two people. No steaks, no imported cheese, no craft beer. Just food.

I stood there in the parking lot doing quick math. If my groceries went up 40% in two or three years, but my savings account was paying 2%, I was not keeping up. I was falling behind. Every single month, the purchasing power of every dollar I had saved was quietly evaporating.

That is the question every Canadian investor needs to confront: is your money growing faster than prices are rising? Because if it is not, you are getting poorer while feeling like you are staying the same. And for most Canadians sitting in savings accounts, GICs, or even bond funds, the answer is uncomfortable.

This page is about why XEQT – a single, globally diversified, all-equity ETF – is the best long-term inflation hedge available to everyday Canadian investors. Not gold. Not real estate. Not “inflation-protected” bonds. Productive businesses, owned globally, held for decades.

1. What Inflation Actually Does to Your Money

Most people understand inflation at a surface level: things get more expensive. But very few people calculate what inflation actually does to their savings over time. When you do, the numbers are alarming.

Inflation is a silent tax. It does not show up on your bank statement. The Canada Revenue Agency does not send you a bill. But every single year, inflation chips away at the real value of every dollar you hold in cash or in low-yielding investments. At 3% inflation – roughly the average Canada has experienced over the past few decades – $100,000 sitting in a savings account loses about a quarter of its purchasing power in just 10 years.

You still see $100,000 on the screen. It still says six figures. But it only buys $74,000 worth of groceries, gas, rent, and everything else.

Here is what happens to $100,000 in real purchasing power at different inflation rates:

Real Value of $100,000 Over Time (No Investment Growth)

Read that 30-year row. At just 3% inflation – which is historically normal – your $100,000 buys less than $42,000 worth of stuff. At 4%, which Canada exceeded in 2022 and 2023, it buys barely $31,000.

That is not a rounding error. That is the destruction of two-thirds of your wealth. And it happens invisibly, without a single red number on your bank statement.

This is the silent tax most Canadians ignore. They look at their account balance, see it staying flat (or growing by 1-2% in a savings account), and think they are fine. They are not fine. They are losing ground every single month.

2. Why Cash and GICs Lose the Inflation Race

When inflation anxiety hits, the instinct for most Canadians is to do the “safe” thing: park money in a high-interest savings account or lock it into a GIC. I understand the appeal. You can see the interest rate. You know your principal is protected. It feels responsible.

But “safe” is doing something very dangerous to your wealth. It is guaranteeing that you lose purchasing power, slowly and surely, for as long as you hold it.

Savings accounts in Canada currently pay somewhere between 1% and 3%, depending on the institution. Even the best high-interest savings accounts rarely exceed 3.5% for sustained periods. When inflation runs at 2-3% – the Bank of Canada’s own target range – you are earning close to zero in real terms. And that is before tax.

GICs look slightly better on the surface. A 1-year GIC might pay 3.5-4.5%. A 5-year GIC might pay 3-4%. Those numbers sound reasonable until you account for two things most people forget: taxes and inflation.

Here is what GIC returns actually look like after you factor in both:

GIC Real Returns After Tax and Inflation

Look at those numbers carefully. At a 30% marginal tax rate – which is modest for many Canadians – a 4% GIC gives you a real after-tax return of negative 0.20%. You are paying the bank to hold your money and call it “income.” Even a 5% GIC, which is unusually generous and rarely sustained, gives you a real return of half a percent. Half a percent. On a locked-in, illiquid investment.

The devastating truth about GICs is this: in a taxable account, they almost never beat inflation. You might break even in a good year. More often, you fall behind. And unlike equities, GIC returns have no mechanism to grow – they are fixed at the rate you lock in, regardless of what happens to the economy.

I wrote a detailed comparison of XEQT vs. GICs that goes deeper on the math. The short version: for any time horizon over five years, GICs are not safe. They are a slow, guaranteed loss of purchasing power dressed up as a “guaranteed” return.

3. How Equities Beat Inflation Over Time

If cash and GICs lose the inflation race, what wins it? The answer, backed by over a century of global financial data, is equities. Stocks. Ownership in real businesses.

Global equities have returned approximately 8-10% annually over long periods. That is not a projection or an optimistic guess. That is the historical average of globally diversified stock portfolios going back to the early 1900s, measured across multiple countries, through two world wars, dozens of recessions, pandemics, financial crises, and every other disaster you can imagine.

Why do equities beat inflation so reliably? Three fundamental reasons:

• Companies raise prices. When the cost of flour goes up, the bakery charges more for bread. When oil prices spike, energy companies pass those costs to consumers. Inflation flows through businesses and into their revenue. Your grocery bill goes up, but so do the earnings of the companies that sell you those groceries.

• Companies increase productivity. Businesses constantly find ways to do more with less – better technology, more efficient processes, smarter supply chains. This productivity growth adds to profits on top of any price increases. Inflation pushes revenue up; productivity pushes margins up. The combination is powerful.

• Companies grow. The global economy is not static. New markets open, populations grow, innovation creates entirely new industries. Equities give you ownership in this growth engine. Cash does not. GICs do not. Bonds do not.

Here is the critical difference: equities are real assets. When you own XEQT, you own a piece of over 8,000 companies across 49 countries. Those companies own factories, patents, software, brands, and customer relationships. Those real assets adjust to inflation naturally. A share of Shopify or Royal Bank or TSMC is not a fixed-dollar promise – it is a claim on the future earnings of a growing business. Those earnings rise with (and usually faster than) inflation.

XEQT has delivered roughly 8% annualized returns since inception. Against 2-3% inflation, that gives you a real return of approximately 5-6% per year. That is not just “keeping up” with inflation. That is building genuine, compounding wealth in inflation-adjusted terms.

Over 20 years, the difference between 5-6% real growth and 0% real growth (which is what you get from GICs after tax and inflation) is the difference between financial independence and running out of money.

4. Why XEQT Is a Better Inflation Hedge Than You Think

XEQT does not just “hold stocks.” It holds a specific, carefully diversified mix of sectors and geographies that, taken together, form a remarkably robust inflation hedge. I covered the full composition in the XEQT sector breakdown, but here is why it matters for inflation specifically.

Different sectors of the economy respond to inflation differently. Some thrive during inflationary periods. Others are resilient. A few struggle. XEQT holds all of them, which means the overall portfolio has natural inflation protection built in.

How XEQT’s Major Sectors Respond to Inflation

The key insight here is diversification. You do not need to predict which sector will benefit most from inflation. XEQT owns them all. When energy stocks surge during an oil price spike, they are in there. When banks profit from rising interest rates, they are in there. When technology companies raise subscription prices without losing customers, they are in there.

Geographic diversification adds another layer of protection. XEQT holds stocks in the US, Canada, Europe, Japan, Australia, and dozens of emerging markets. Inflation does not hit every country equally or at the same time. When Canadian inflation ran above 6% in 2022, some of XEQT’s international holdings were in countries with much lower inflation. This geographic spread smooths out the impact and ensures your portfolio is not hostage to any single country’s monetary policy mistakes.

This is something you cannot get from a GIC, a savings account, or even Canadian-only investments. Global diversification is one of XEQT’s most underappreciated features, and it is particularly valuable as an inflation hedge.

5. Real Returns vs. Nominal Returns: The Number That Actually Matters

This is one of the most important concepts in investing, and most Canadians never think about it. The difference between nominal returns and real returns is the difference between feeling wealthy and actually being wealthy.

Nominal return is the raw number your investment grew by. It is the number on your statement.

Real return is your nominal return minus inflation. It is what your investment actually earned in purchasing power – the only kind of return that matters for your future quality of life.

Here is a quick example:

• Your investment earns 10% this year. You feel great.
• Inflation was 3%. Your real return was 7%.
• You are richer. But not as rich as the 10% made you feel.

Now here is the version that should keep GIC investors up at night:

• Your GIC earns 4% this year. You feel responsible and safe.
• You pay tax on that 4% at a 30% marginal rate. Your after-tax return is 2.8%.
• Inflation was 3%. Your real after-tax return is -0.2%.
• You lost purchasing power. The “safe” investment made you poorer.

Let me put this in a table that compares the three most common Canadian investment choices in both nominal and real terms:

Nominal vs. Real Returns: XEQT vs. GICs vs. Savings Accounts

That last row should make you uncomfortable. A savings account with 3% inflation is losing you 1.6% per year in real, after-tax terms. On $100,000, that is $1,600 per year of purchasing power – gone. Not in a market crash. Not in a bad year. Every year, by design.

The single most valuable mental shift you can make as an investor is learning to think in real terms. When someone tells you their GIC earns 4%, your first thought should be: “What is inflation?” When someone brags about their savings account rate, your first thought should be: “What is your after-tax, after-inflation return?”

The answer, for most Canadians in most years, is negative. That is not safety. That is a slow bleed.

6. The Inflation Protection You Already Have (and Might Be Wasting)

Here is something that frustrates me: millions of Canadians have access to the most powerful inflation-fighting tool the government offers – the TFSA – and they fill it with savings accounts or GICs earning next to nothing in real terms.

Your TFSA is not just a savings account with a different name. It is a tax-free compounding machine. Every dollar of growth inside your TFSA is completely sheltered from tax – no capital gains tax, no tax on dividends. That means the nominal return is the real pre-inflation return. There is no tax drag eating into your purchasing power.

This makes the TFSA the single best account for inflation protection, but only if you fill it with investments that actually beat inflation. A TFSA holding a 2% savings account is wasting the most valuable feature of the account.

Let me show you the difference with real numbers. Assume you invest $7,000 per year (the current annual TFSA contribution limit) for 20 years, with 3% inflation throughout:

XEQT in a TFSA vs. GIC in a TFSA Over 20 Years

Read that last row twice. With XEQT in a TFSA, you gain roughly $51,000 in real, inflation-adjusted purchasing power above what you contributed. With a GIC in a TFSA, you actually lose about $22,000 in real terms – your money grew, but not fast enough to keep up with prices. After 20 years of diligent saving, you can buy less than what you put in.

The same principle applies to your RRSP. While RRSP growth is tax-deferred rather than tax-free, the tax deferral still supercharges your real returns by allowing the full nominal return to compound without annual tax drag. Filling your RRSP with XEQT instead of GICs means dramatically more purchasing power at retirement, when you will actually be spending the money and feeling the effects of 20 or 30 years of accumulated inflation.

The accounts are tools. XEQT is the fuel. Using powerful tax-advantaged accounts to hold low-return investments is like buying a sports car and filling it with cooking oil. The vehicle is capable of so much more.

7. What About Bonds, Gold, and Real Return Bonds?

Whenever I write about inflation, someone asks: “What about bonds? What about gold? What about real return bonds? Aren’t those the traditional inflation hedges?”

Fair questions. Let me address each briefly.

Bonds are the classic “safe” allocation. The problem is that bonds get hammered during inflationary periods. When inflation rises, central banks raise interest rates to fight it. When interest rates rise, existing bond prices fall. This is exactly what happened in 2022 – Canadian aggregate bond ETFs like ZAG dropped roughly 12% while inflation was running above 6%. Bonds did not protect against inflation. They suffered from it.

Over long periods, bonds return about 3-5% annually, which barely keeps pace with inflation before tax. After tax in a non-registered account, bonds typically deliver negative real returns. They have a role in reducing volatility for retirees and short-term savers, but they are not an inflation hedge. I covered this in detail in the XEQT vs. bond ETFs comparison.

Gold is often touted as the ultimate inflation hedge. Gold does tend to hold its value over very long periods, but it produces no cash flow, pays no dividends, and generates no earnings. Over the past 50 years, gold has returned roughly 5-7% annually – less than equities, with enormous volatility. Gold can drop 30-40% and stay down for a decade. I covered the full comparison in XEQT vs. gold ETFs.

Real Return Bonds (RRBs) are designed specifically for inflation protection – their principal adjusts with the Consumer Price Index. In theory, they sound perfect. In practice, the yields are very low (often 1-2% real), the market is small and illiquid in Canada, and the Government of Canada stopped issuing new RRBs in 2022. They are hard to buy, hard to hold, and the returns are modest even when they work as designed.

Here is my honest assessment: none of these alternatives come close to global equities as a long-term inflation hedge for most Canadians. Bonds suffer during inflation. Gold is volatile and unproductive. RRBs are niche and low-returning. XEQT gives you 8,000+ companies that actively adapt to inflation by raising prices, improving productivity, and growing earnings. It is not just a passive hedge – it is an active, self-adjusting inflation-fighting machine.

The simplest, most reliable, most accessible inflation hedge is the one you can buy commission-free on your phone in 30 seconds: XEQT.

8. The Bottom Line: Own Businesses, Beat Inflation

Let me bring this full circle. I started this page standing in a parking lot, staring at a $214 grocery receipt, feeling that sinking realization that my money was buying less every month. That feeling is not going away. Inflation is a permanent feature of modern economies. The Bank of Canada targets 2% inflation – they want your money to lose value slowly, predictably, and relentlessly.

You cannot opt out of inflation. But you can choose how you respond to it.

• You can keep your money in a savings account and watch it lose 1-2% of real value every year
• You can lock it in GICs and maybe, if you are lucky, break even after tax and inflation
• You can buy bonds and hope that interest rates cooperate (they often do not)
• Or you can own productive businesses around the world – companies that raise prices, grow earnings, innovate, and compound wealth at 5-6% above inflation, year after year, decade after decade

That last option is exactly what XEQT gives you. One ETF. Over 8,000 companies. 49 countries. Every major sector. Automatic rebalancing. A MER of 0.20%. No stock picking. No market timing. No complexity.

The best defense against inflation is not a “special” investment. It is not a commodity play or an inflation-linked bond or a real estate gamble. It is the simplest, most boring thing in the world: owning a diversified slice of every productive business on the planet and holding it for decades.

That is what XEQT does. That is why I hold it. And that is why, the next time I stare at a grocery receipt and wince at the total, I will know that my portfolio is not just keeping up – it is pulling ahead.

Disclosure: This page contains referral links. I may receive compensation if you sign up through these links, but this does not affect my honest assessment. I genuinely believe XEQT is an excellent choice for Canadian investors seeking simple, low-cost, globally diversified growth. Historical returns do not guarantee future results. This is not financial advice.