Inflation Taking a Big Bite Out of Families and Businesses

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CANADIAN MONEY

CALGARY – BUSINESS – The infamous “r” word recession is when there are two successive quarters with negative economic growth. Canada may not be in an official recession right now but with inflation taking a harsh bite out of every person, and every business budget, the economy is in turmoil.

“No matter where Canadians turn, there is no reprieve; housing is more expensive, driving a car is more expensive, food is more expensive,” says Grant Bazian, president of MNP LTD., the country’s largest insolvency firm. “Right now, many Canadian households are trying to adjust their budgets, cutting costs where they can in order to keep up with their monthly bills. But as the cost of living continues to rise – it’s likely to get worse before it gets better – households will have to make increasingly difficult choices about what to cut, and could find themselves piling on debt to make ends meet.”

The latest MNP Consumer Debt Index, conducted quarterly by Ipsos on behalf of MNP LTDAs reports that as interest rates and the cost of basic necessities have continued on their upward trajectory over the past few months, Canadians are becoming acutely aware of the impact on their household budgets. Increasing a staggering seven points since last quarter, six in ten (59%) Canadians say they are already feeling the effects of interest rate increases.

Many Canadians are now being forced to make tough budget decisions to make ends meet, with nearly half (46%) saying they are cutting back on non-essentials such as travelling, dining out, and entertainment, while one-third are buying cheaper versions of everyday purchases (37%) and driving less (30%). Over a quarter (27%) are making the difficult decision to cut back on essentials such as food, utilities, and housing. Women and those aged 35-54 are significantly more likely to say they will be cutting back on non-essentials (women 49% vs. men 42%, 35-54 48% vs. 55+ 48% vs. 18-34 39%) and essentials (women 30% vs. men 24%, 35-54 33% vs. 18-34 25% vs. 55+ 24%). Only one in ten (12%) are fortunate enough to say they don’t have any increased expenses to pay for.

Further indication that Canadians could be in for a rough rest of the year, half (50%, -1) of Canadians say that if interest rates go up much more they will be in financial trouble, with women (women 55% vs. men 45%) and those aged 18-34 and 35-54 (18-34 62% vs. 35-54 63% vs. 55+ 30%) being more likely to agree they will be in trouble. Four in ten (39%, unchanged) say that rising rates could drive them closer to bankruptcy.

Almost a quarter (24%) say they are not financially prepared to deal with an interest rate increase of one percentage point, up two points from last quarter. Moreover, over half of Canadians say they are concerned about the impact of rising interest rates on their financial situation (58%, +1pt) and are concerned with their ability to cover all living/family expenses in the next year without going further into debt (55%, +2pts). The proportion of those who agree they are concerned about the impact of rising interest rates is up 13 points since June 2017.

“With inflation nearing a 40-year high, there is mounting pressure for more aggressive interest rate hikes to tame inflation. Canadians who are not financially prepared to absorb future interest rate increases are likely to find themselves in financial trouble soon, as they are unable to manage the increasing costs of their debt repayment obligations,” says Bazian.

While the vast majority of Canadians (82%, +1pt) agree that with interest rates rising they will be more careful with how they spend their money, more than half (56%, -1pt) say that as interest rates rise, they are more concerned about their ability to pay their debts. Two in five say they are concerned about their current level of debt (41%, unchanged) and say they regret the amount of debt they’ve taken on in life (42%, -2pts).

Bazian advises those concerned about upcoming bills and debt repayments should speak with a federally-regulated Licensed Insolvency Trustee who can help determine the best debt-relief solution through a confidential, unbiased and customized assessment of their financial situation.

“There comes a point when even the strictest budget may not be enough to help an individual stave off financial problems,” says Bazian. “Only Licensed Insolvency Trustees are able to provide the full range of debt-relief options, including consumer proposals and bankruptcies, that help individuals who are experiencing unfortunate circumstances and severe financial stress to release their debts and obtain a fresh financial start.”

The MNP Consumer Debt Index is now in its fifth year quarterly tracking Canadians’ attitudes about their debt situation and their ability to meet their monthly payment obligations. Despite the current economic environment of rising inflation and surging cost of living, the financial confidence of Canadians has crept up slightly from last quarter. Now in its 21st wave, the Index increased three points since last quarter to 90 points, although still remaining well below its benchmark score established five years ago. Prior to and throughout the pandemic, the Index was averaging high 90s and over 100 but Canadian’s confidence in their personal financial situations has struggled to return to pre-pandemic scores.