Inflation and Interest Rate Increase Anxiety

While Canadians already experienced a full one percent interest rate increase, only to be followed by another three quarter bank prime rate hike, economists anticipate everything from zero to another half a percent increase on October 26th. With only two scheduled announcements remaining in 2022, will the the Bank of Canada stay on the "reduce inflation at all costs" path? We will have to wait for the subtext in the next announcement.

Here is today's update:

Inflation and rising interest rates are having a very real affect on Canadian spending habits and housing affordability according to a pair of new reports.

The latest survey by the Angus Reid Institute suggests that nearly 90% of Canadians are “tightening their belts” as a result of rising costs, an 8-point increase from August. 

Most (66%) are cutting back on discretionary spending but fully half are delaying major purchases like appliances, cars and homes. More than a quarter (26%) now say they are taking the troubling step of deferring contributions to savings – which could include savings for a home – or to their retirement. That is up from 19%, who said the same thing, just six weeks ago.

The survey also suggests nearly half of Canadians feel their financial situation is worse now than it was a year ago.

Against this tight-money backdrop one Canada’s big, chartered banks is reporting the worst housing affordability it has ever recorded.

Using the ratio of mortgage carrying costs to household income the bank’s, so-called, “aggregate affordability measure” hit 60%. That beats the previous worst-ever reading of 57%, hit in 1990.

The bank expects the current housing market correction to push prices down 14% by the end of the year which, it says, will help affordability. But it also expects on-going interest rate increases to delay the benefits of any price declines.