Canadians reveal how inflation, rate hikes are impacting their finances

Younger Canadians have been disproportionately affected by the challenges of 2022

Canadians reveal how inflation, rate hikes are impacting their finances

Rising interest rates and a cost-of-living crisis spurred by rampant inflation have created something of a perfect storm for Canadians in 2022 – and a recent survey has revealed just how significantly those factors are weighing on their finances.

A majority of Canadians (52%) now say it’s less affordable to feed themselves and their family, according to the quarterly MNP Consumer Debt Index, conducted on behalf of the insolvency trustee by Ipsos, with younger Canadians in particular seeing their available finances at month end continue to dwindle.

That cohort now has an average of $606 left over each month once they’ve paid their bills, the survey indicated, down $273 over the previous quarter, while nearly half of Canadians (49%) say it’s more difficult to put money away for savings, a five-point jump from the last survey.

Fewer Canadians said they were $200 or less away from not being able to meet all of their financial obligations compared with the previous quarter, while a higher percentage rated their personal debt situation as “excellent” (43%, up from 38% in Q2).

Three in 10 Canadians said they expected their debt situation to improve a year from now, with fewer expecting it to worsen – 11%, compared with 15% the previous quarter.

Still, that could be reflective of a false sense of optimism about the future, cautioned MNP president Grant Bazian (pictured), particularly with the future trajectory of rate increases and inflation still unclear.

Canadians who may have worried how those factors would impact them in terms of food, transport, clothing, and other costs could find themselves still relatively comfortable even though those necessities are less affordable, Bazian explained.

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“I think they’re probably in a better state of mind, which is great,” he told Canadian Mortgage Professional. “But inflation and interest rate increases take a while to settle in. So that’s why I just caution everyone. You’re feeling better about your financial situation – that’s what the survey says.

“That’s great, and hope that continues. But just be cautious, because sometimes it takes a while for economic factors to sink in. And that’s where the false sense of optimism comes in.”

The trend of younger Canadians being hit harder in terms of disposable income left over at the end of each month is also troubling, Bazian said. “There’s more financial stress and pressure on them. So it kind of makes sense that they’d be hit the hardest,” he explained.

“Keep in mind – it is a sentiment survey, and these are approximations. But unfortunately, younger Canadians are always hit hard when financial constraints come into play, interest rate increases, etc. So, it makes sense.”

There’s still currently much uncertainty about how long interest rates will continue to rise. While some had anticipated that the Bank of Canada might hit pause on rate hikes after its September decision, the central bank’s statement accompanying that 75-point jump indicated rates would almost certainly need to rise further.

And while the annual rate of inflation has fallen in two consecutive months, it still sits at 7% at last measure – well above the Bank’s target rate of 2%, with a long way seemingly still to go before it falls substantially.

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What should Canadians be keeping top of mind in that climate? “There’s a chance that things may become more expensive, and inflation may still increase despite government controls,” Bazian said. “So if you’re feeling good about your situation and you’re able to save a bit more money, save it now. Because who knows what the future holds.

“Just be careful – budget, see what you can pay down [debt-wise], because then that will hurt you in the future [if] prices do go up.”

Unsurprisingly, tighter budgets as a result of cost-of-living challenges mean that many Canadians have shelved their homebuying plans, at least temporarily, as mortgage shopping falls behind other priorities.

Nearly one in five Canadians (19%) have either delayed the purchase of a home or pushed it down their list of priorities, according to a new Royal LePage survey conducted by Leger. Among younger Canadians aged between 18 and 34, that figure rose to 29%.

Sixty per cent (60%) of all Canadians who delayed a home purchase have put those plans on hold indefinitely, the survey revealed, while 40% are still planning to purchase somewhere down the line.