High inflation, the rising cost of living and high interest rates continue to weigh on the lives of Quebecers who must review their consumption habits due to the budgetary constraints that these elements induce in their daily lives. . This difficult context is expected to continue, but there is a slight glimmer of hope: we could soon see the end of interest rate increases.
This glimmer of hope was Tiff Macklem, governor of the Bank of Canada, who cautiously distilled it Wednesday noon in a speech he gave in Saint John, New Brunswick.
In his speech, the head of Canadian monetary policy recalled that the fight against inflation had required a relentless response with a systematic tightening of interest rates so that Canada does not relive a situation similar to that of the 1970s.
At that time, for around ten years, inflation remained high, at more than 7% per year with a peak of 13%, because the monetary authorities were slow to act.
The 10 rate increases which have been decreed since March 2022 and which brought the key rate from 0.25% to 5% were an extreme, but necessary, remedy, argued Wednesday Tiff Macklem, who for a rare time seemed to appreciate the progress made thanks to its restrictive monetary policy.
Possibly invigorated by the statistics revealed the day before by Statistics Canada, which told us on Tuesday that the consumer price index had increased by only 3.1% in October compared to 3.8% in September, Tiff Macklem wanted to sow a little hope, which he quickly put into perspective.
“The tightening of monetary policy is working, and it is possible that interest rates will now be restrictive enough to restore price stability. But if high inflation persists, we are ready to raise our key rate again,” declared the Governor of the Bank of Canada.
There is therefore some hope on the horizon if inflation remains at a level near the top of the 1% to 3% range targeted by the Bank of Canada, but if the movement starts to rise again after the appeasement that we have just recorded, the governor will not hesitate to resume increases.
Consumption falling
One thing is certain, the high inflation of the last year and a half – and the rise in interest rates that it has led to – has seriously weakened the morale of Quebec consumers and even forced them to review their spending methods.
According to the latest Barometer from the Responsible Consumption Observatory of the School of Management Sciences of the University of Quebec in Montreal (ESG UQAM), in a special edition Cost of lifein collaboration with the market research firm MBA Recherche, the perception of the deterioration in the purchasing power of Quebecers has never been so high.
According to the results of a survey carried out among 1,000 respondents, from a sampling of more than 30,000 consumers, 72.2% of Quebecers felt the deterioration of their purchasing power in 2023. This is the highest percentage recorded in 14 editions of the Responsible Consumption Observatory Barometer.
The high cost of many products has pushed 53.7% of Quebecers to reduce their consumption in 2023, another peak; some did it voluntarily and others, more financially stressed, did it out of obligation.
Among those who say they have reduced their consumption, 90.3% say they compare prices more between products, and 84.3% between businesses. More than 85% are buying more discounted products and more than 80% are using advertising brochures and discount coupons more, indicates the 2023 Barometer.
“People who have reduced their consumption favor house brands more (76%) and 71% of them go more to discount stores,” explains Fabien Durif, director of the Responsible Consumption Observatory.
Despite the general rise in prices, the purchase of local products remains a strong motivation among Quebec consumers, while 65.3% of respondents say they continue to buy them, just like consumers of organic products who have not abandoned their habits despite price increases.
Generally speaking, however, it was products in the fashion sector that recorded the biggest decline, with 44% of consumers saying they purchased less of them in 2023, followed by electronic products and beauty and cosmetic products.
According to Fabien Durif, the results of the next Barometer, that of 2024, risk presenting an even more worrying portrait as we plan to add a component that will measure the financial stress of consumers by taking into account high interest rates.
“It is next year that we expect to record the most mortgage loan renewals and it is next year that many homeowners will have to deal with interest payments that are significantly more expensive than what they had to pay. This will impact all consumption,” anticipates the professor from ESG UQAM.
Already, there are signs that inflation and high interest rates are starting to take a toll on the most vulnerable consumers. The firm Raymond Chabot told us on Wednesday that consumer insolvency had increased by 18.6% during the first nine months of 2023 compared to 2022.
“This is the worst score recorded since 2019, the worst year for the number of consumer insolvency cases. The situation has been deteriorating since April 2021, since liquidity tightened. It’s a much more complex economic context,” confirms Sophie Desautels, first senior director and authorized insolvency trustee at Raymond Chabot.