A growing number of Canadians are worried that interest rates are rising faster than they can keep up, new polling suggests, just as many economists expect the Bank of Canada will deliver another rate hike this week.
Polling from Ipsos Public Affairs conducted exclusively for Global News between June 19 and 20 shows a growing number of Canadians are concerned they won’t be able to pay off debts like credit card bills amid higher interest rates and inflation that continues to cause pain, particularly at the grocery store.
More than four in five Canadians (81 per cent) say they’re worried inflation will continue to make life unaffordable, according to the Ipsos survey.
That comes despite the annual inflation rate cooling to 3.4 per cent in May, suggesting price pressures across the board are cooling for most Canadian households. The major caveat here is that the price of food purchased from the grocery store continued to rise 9.0 per cent annually in that month.
But Sanyam Sethi, vice-president at Ipsos Public Affairs, tells Global News that the continued stress among Canadians doesn’t reflect the recent easing from inflation, but rather the lingering impact of the rapid run-up in prices seen over the last year.
“Yes, the growth rate of inflation is slowing down. But the cumulative effect of the last few years of increasing prices, they continue to aggravate the financial anxieties Canadians are feeling,” Sethi says.
She adds that as overall inflation shows signs of easing, many Canadians are just now experiencing the “pinch” of higher interest rates following the Bank of Canada’s rapid increases since March 2022.
Some 71 per cent of Canadians are worried that interest rates will rise faster than they can adjust, according to the polling. That’s slightly higher than results in April, when the Bank of Canada held rates steady for the second time this year as it waited to see whether its previous hikes would do enough to slow the economy and bring inflation down its two per cent target.
But the central bank ended that brief pause in June with a 25-basis-point rate increase that surprised most economists.
The bank’s next rate decision is set for Wednesday. Many economists — including all six big Canadian banks — are expecting policymakers will not be satisfied with a single hike in June and will bring the policy rate up to 5.0 per cent as core inflation remains sticky and the economy shows signs of resilience.
That will be the highest point for the Bank of Canada’s benchmark interest rate since 2001, says Rubina Ahmed-Haq, personal finance expert and host of For What It’s Worth on the Corus Entertainment radio network. Corus Entertainment is the parent company of Global News.
Ahmed-Haq told Global News’ Jaden Lee-Lincoln over the weekend that the higher rate environment is new territory for many homeowners who have never had to pay their mortgage at rates this high.
Indeed, some 79 per cent of millennials (those aged 27-42) said in the Ipsos survey they were worried about the pace of rate increases, the highest proportion of any other demographic. Some 72 per cent of millennials said they were concerned about their plans to purchase a home, start a family or travel in the future amid rising interest rates.
“For most people who own a home today, they’ve never experienced this interest rate environment,” Ahmed-Haq said.
“There really is a paycheque-to-paycheque situation in many Canadian households.”
Debt piles up
The higher interest rates go, the more Canadians are paying to service household debt.
The higher cost of borrowing comes into play when homeowners renew their fixed-rate mortgages, or on mortgages and loans with variable rates of interest such as home-equity lines of credit (HELOCs).
Debt is a particular pain point for Canadians, who hold the highest level of household debt in the G7, according to the Canada Mortgage and Housing Corp.
Ipsos’s survey shows 55 per cent of Canadians are worried they won’t be able to pay off their entire credit card bill, up a percentage point from similar polling in April. Roughly six in 10 (63 per cent) of respondents said they couldn’t handle a sudden expense of $1,000 or more.
A separate poll from insolvency firm MNP released Monday shows that more than half of Canadians (52 per cent) say they are $200 or less away from not being able to pay off all their bills. That figure is up six percentage points from a survey in April.
Ahmed-Haq said Canadians might feel like they’re forced to take on additional debt just to make payments on their existing loans, but this can start a “vicious cycle” that only sees debt obligations grow.
If consumers are forced into this position, she recommends only ever taking on a loan at a lower interest rate than the debt you’re paying off — consolidating high-interest debt like credit cards into a loan with a lower monthly payment to help keep the loans manageable.
Canadians forced into difficult decisions
While recent interest rate increases have been smaller in magnitude compared with the rapid hikes seen last year, the traditional wisdom is that it takes 12-18 months for the full impact of higher rates to be felt in the economy.
David Gowling, senior vice-president at MNP, says the signs of mounting stress around Canadians’ debt show this pressure is now starting to bear down on household budgets.
“As those interest costs keep increasing, that has to come from somewhere else in the budget,” he tells Global News. “And people are trying to cut. But you can only cut so far and that’s where you start to feel, ‘OK, if this goes much further, I’m going to be in some serious trouble.’”
Even as the overall rate of annual inflation shows signs of cooling, Canadians trying to keep up with the rising cost of living and higher interest rates have had to cut back more and more, Ipsos polling shows.
Fewer Canadians are travelling as they try to trim expenses, with 29 per cent saying they’re cutting back on both domestic and international travel — up four and five percentage points from April’s surveys, respectively. Almost two-thirds (64 per cent) of families with kids are concerned they won’t be able to afford a holiday this summer.
Some 56 per cent of Canadians are dining out less — up from 48 per cent in April — and nearly half (48 per cent) are cutting back on entertainment spending, compared with 42 per cent in April.
At the grocery store, more than half of Canadians are now using flyers (53 per cent, up five percentage points) and nearly a third are using coupons (32 per cent, up four percentage points). Some 30 per cent of shoppers said they were changing their grocery stores to find cheaper products, up from one in four in April.
— with files from Global News’ Anne Gaviola
These are some of the findings of an Ipsos poll conducted between June 19 and 20, 2023, on behalf of Global News. For this survey, a sample of 1,000 Canadians aged 18+ was interviewed. Quotas and weighting were employed to ensure that the sample’s composition reflects that of the Canadian population according to census parameters. The precision of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ± 3.5 percentage points, 19 times out of 20, had all Canadians aged 18+ been polled. The credibility interval will be wider among subsets of the population. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error and measurement error.