The cooling of inflation has not solved the financial difficulties. The pressure on Canadians' lives only increases and does not abate. Experts guide how to break the situation

FX168 ·  May 25 04:21

FX168 Financial News (North America) News So far in 2024, Canadian households have received good news in terms of living costs. Monthly inflation data shows that the annual price growth rate for the first four months was less than 3%. #2024宏观展望 #

Although the Bank of Canada has made significant progress in reducing the annual inflation rate from a high of 8.1% nearly two years ago to the 2% target, a new survey released on Thursday (May 24) shows that the financial pressure Canadians have felt since then has increased.

FP Canada, an organization representing Canadian financial professionals, has released its 2024 Financial Stress Index, which is based on the results of a Leger survey conducted in late February and early March.

About 44% of respondents said that money was their main source of pressure, up 6 percentage points from a similar poll two years ago. When asked what triggered this anxiety, Canadians mentioned higher food prices (69% increase), general inflation (60%), and housing costs (52%).

Ipsos's April exclusive poll for Global News supports the intense pressure consumers feel in food stores. About 83% of respondents said their weekly food bill had increased by an average of $78.90 over the past six months.

The April inflation report released by Statistics Canada on Tuesday showed that price pressure eased further, and the overall annual inflation rate fell to 2.7% from 2.9% in March.

In particular, inflation in food stores has slowed down the overall figure, and prices have risen by only 1.4% for the whole year. Some categories, including fruits, nuts, and seafood, even declined year over year.

Despite recent relief, Statistics Canada notes that food prices have risen 21.4% since April 2021. Rents continue to rise at an annual rate of 8.2%.

Rubina Ahmed-Haq, a personal finance expert and host of the Corus Entertainment radio program “For What It's Worth,” told Global News that the cumulative impact of price increases in such a short period of time is causing financial pressure.

She said three years ago — when price increases triggered by the pandemic began to accelerate — are still a “recent memory” for most consumers. Canadians remember pre-pandemic housing and food costs, and are still “rebuilding their lives,” experiencing a series of chaos in recent years.

“We just got through the three-year pandemic, and for a long time everything turned upside down. People lost their jobs and lost their businesses,” Ahmed-Haq said.

“We are seeing interest rates rise at a rate not seen in the past three decades. We're seeing the highest inflation since the 1980s. So a lot happened in a very short amount of time.”

Young people have the strongest feelings

Finance Minister Chrystia Freeland celebrated the lower inflation rate in April on Tuesday, pointing out that annual wage growth over the past 15 months has outpaced inflation. Last month, the average hourly wage increased 4.7% year over year, down from 5.1% in March.

However, Ahmed-Haq said wage growth is a relatively new phenomenon in the economic cycle, and most Canadians have yet to catch up with the continued high level of inflation that peaked in the summer of 2022.

According to a Leger poll, young Canadians are particularly affected by financial stress. Half of Canadians under 35 think finance is their main stressor, compared to 42% of older adults.

This younger group is more likely to say that financial stress has had at least one negative impact on their lives (72%), with half saying they are facing anxiety, depression, and other mental health issues due to financial issues.

Ahmed-Haq said that the younger generation in Canada may have heard of their parents' difficulties during the 2008 global financial crisis while growing up, and are now facing challenges such as housing affordability.

These financial barriers make the iconic events of adulthood more difficult to achieve, explains Ahmed-Haq.

“All of these things have become more difficult. So I think part of the reason is psychological,” she said.

Debt repayments take up a larger share of the budget

While overall inflation is cooling, the Bank of Canada's rapid rate hike cycle has made certain types of debt more expensive and raised the cost of housing for many people.

Qualified assistant financial planner Meghan MacPherson told Global News that Canadians have to allocate more of their monthly budget to debt payments as part of the increased pressure.

Referring to the interest rate hike cycle, she said, “We were in a situation where borrowing costs were very low, and then in a very short period of time, we reached a stage where anyone with outstanding debt saw a significant increase in repayments.”

The Financial Stress Index shows that more and more Canadians are feeling problems with their debt repayment. Nearly a quarter of respondents (24%) said they plan to pay off their outstanding credit card debt within the next 12 months, which is 5 percentage points higher than in 2022. Debt repayment is also at the top of planned spending priorities (19%), surpassing vacation priorities.

Ahmed-Haq said these plans faced challenges amid rising living costs and rising debt costs. She said it may be difficult for Canadians to find the full amount needed to reduce or eliminate loans.

“We may be aware that we need to pay off our debts, but many of us haven't found the extra money to actually do that,” she said.

How to take control of the situation

Despite increased financial pressure, FP Canada's Financial Stress Index reports that 91% of respondents said they had taken at least one action over the past year to allay their concerns.

MacPherson said that for most Canadians who are overwhelmed by financial problems, the best first step is to start tracking their cash flow so they know what parts of their lives are putting the greatest financial pressure on them.

Tracking expenses was listed as the first action taken by 45% of respondents, followed by 38% who said they focused on debt repayment and 33% who said they increased their savings.

Ahmed-Haq said that for young Canadians in particular, focusing on accumulating savings early on and giving that money more time to compound is beneficial in the long run. She suggests cutting back on eating out with friends once a month and trying to save a few hundred yuan at a time is a great start.

“Time is on your side,” she said. “This will really pay off when you're older.”

MacPherson also said that starting small is the best way to ensure that behavioral changes are “sustainable” over the long term.

“Too often, when things go wrong or plans aren't sustainable, it's because they're taking on too much or trying to make drastic changes within their overall budget and financial situation,” she said.

There are signs that more Canadians are seeing the light at the end of the tunnel, with 50% of respondents saying they are more optimistic about their financial future, compared to 47% last year.

Ahmed-Haq said there is “always hope” that financial conditions will improve, but many families are still adjusting to recent disruptions. For some, that meant moving to a more affordable community and finding the right financial situation in a post-pandemic reality, she said.

Ahmed-Haq said Canadians have experienced generations of economic turmoil and she doesn't think these latest barriers will be any different.

The translation is provided by third-party software.

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