A Bank of Canada survey shows Canadians are increasingly cutting back on spending, while mortgage holders remain optimistic they will be able to make larger payments after their loan renewals.
The central bank released its consumer expectations and business outlook surveys for the fourth quarter on Monday, revealing how Canadians are faring amid higher borrowing costs and rising prices.
About two-thirds of consumers said they were cutting back on spending or planning to do so because of their expectations for interest rates and inflation.
One in four consumers vulnerable
While many households are experiencing “increasing levels of financial stress,” that stress is higher among those “who typically live paycheck to paycheck,” the Bank of Canada says.
According to the central bank, financially vulnerable households typically hold less than two weeks’ worth of spending in liquid assets, often run out of money before the end of the month and are unable to immediately pay an unexpected expense of $500.
The survey reveals that one in four consumers say they have at least one of these characteristics.
And even though Canadians are more pessimistic about the economy than in the previous quarter, mortgage holders still expect to be able to make their payments when their mortgages are renewed at higher rates.
About 80% of mortgage holders said they were somewhat or very confident in their ability to make higher payments.
On the business side, the central bank notes that weaker demand and renewed competitive pressures have slowed the pace of price increases.
And even though fears of labor shortages have faded, businesses expect wage growth to remain above average through 2025, bolstering their inflation expectations.