Almost half of Canadians believe their wages will never catch up with rising prices, while debt concern reaches new level
There is more data this week highlighting the pressures that Canadian households are feeling after almost a year of rising prices and interest rate hikes.
Firstly, the quarterly barometer of consumer sentiment from the Bank of Canada shows that rising food prices are a particular source of frustration and together with weakened expectations of what’s ahead, spending on a broad range of goods and services has been reduced.
Six in ten respondents believe there will be a recession within the next 12 months, with most thinking it will be moderately severe and somewhat long.
Consumers are concerned mostly about the impact recession will have on their asset values, but also difficulty paying bills, and reduced income.
With the strong labour market, little more than 10% of respondents think their hours may be cut or that they would lose their job.
Debt growth
Meanwhile, a report from insolvency firm MNP Debt shows that its Consumer Debt Index has plunged 15 points to a new record low since the index began five years ago.
Behind the reading of 77 points is concern among 47% of respondents about their current level of debt, regret about having so much debt (49%), and reduced confidence in their ability to cover all of their living/family expenses in the next year without going further into debt (51%).
“This major shift in Canadians’ attitudes towards their personal debt is a reflection of the rapidly rising interest rates and persistent inflation this past year,” says Grant Bazian, president of MNP LTD., the country’s largest insolvency firm. “For many, this represents a double whammy, because inflation is eroding household budgets and, at the same time, financially fragile and overleveraged Canadians face sharply rising borrowing costs.”
Impact of rate hikes
Seven in ten people said they are already feeling the effects of interest rate increases and more than a quarter would have trouble absorbing a 1-percentage-point rate rise.
More than half of respondents said that feeding themselves and their family (57%) and putting money aside for savings (56%) are less affordable, and about half say that transportation (50%), clothing or other household necessities (51%) and housing (45%) are becoming less affordable.
“Lower and some middle-income households typically spend nearly all their income each month, leaving very little wiggle room to accommodate an increase in expenses and debt carrying costs. These Canadians are struggling to maintain their standard of living, and often they resort to taking on more debt,” explains Bazian.
