as new interest rate hike expected, albertans feeling the impacts hardest: report
'the most specific concern is having enough to pay the essentials,' said donna carson, a licensed insolvency trustee for mnp
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office workers walk through a plus-15 into the bow office building in downtown calgary on wednesday, january 18, 2023.
gavin young
/
postmedia
albertans are feeling the crunch of interest rates more than other canadians.
mnp released its latest quarterly consumer debt index (cdi) on monday, painting a concerning picture of albertans’ ability to continue to manage their way through tight economic times.
in particular, 72 per cent were concerned about their ability to pay debts with the rise in interest rates (that number is up by 21 percentage points), while 74 per cent were feeling the effects of the increase in interest rates — both high water marks for canada.
this has led to 51 per cent of albertans reporting they are $200 or less away from insolvency.
“the most specific concern is having enough to pay the essentials,” said donna carson, a licensed insolvency trustee for mnp.
the cdi is a quarterly poll conducted by ipsos for mnp and gauges the ability of canadians to pay their bills.
while 56 per cent of respondents had regrets about the debt they have taken on, carson said there were some positive indicators in the report. notably, 91 per cent of albertans said they will be careful with how they spend their money, the highest mark in the country.
it is, however, getting more difficult to maintain a budget with inflation still at 3.4 per cent. the cdi indicated essential spending had increased by $274 a week for albertans, year over year. she said those in the 35-55 age range were feeling the hikes the most due to carrying mortgages and other debt financing for vehicles or credit.
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“i think most people have trimmed the excess as much as they can, but if you cut back on your grocery budget, but then the cost goes up again next month, you have to change your budget again next month,” said carson. “budgets evolve, they’re not a static thing.”
she said albertans have been hit hard by years of low lending rates with the financial ability to take on debt financing. now, they are paying the price as the bank of canada struggles to get inflation down to its one-to-three per cent target.
new interest rate hike expected this week
budgetary challenges are about to get a little more difficult, with many economists expecting an overnight interest rate target increase on wednesday. a small 25 basis-point bump would bring the rate to five per cent for the first time in two decades.
the current rate has increased 450 basis points since march 2022 after being one per cent or lower for most of the past 13 years.
charles st-arnaud, chief economist for alberta central, said the likely increase is due to an economy that is still too strong, looking at low unemployment levels, an ongoing hot real estate market and strong retail sales.
but he was not sold on the need for a potential hike, and said the bank of canada is in a stage of being overly cautious.
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“a big part and driver of inflation in recent months has been the kind of the feedback loop of higher interest rate into higher mortgage payment that feeds into higher inflation, and when you remove that higher mortgage interest payment, actually inflation is below three per cent,” he said. “the bank of canada is probably wanting to err more on the side of doing slightly too much than not doing enough because they’ve been under a lot of criticism for being late fighting inflation.”
insolvencies in alberta, western canada increasing
st-arnaud, who was a senior economist at the bank of canada from 2002-05, said the surveyed feelings of alberta consumers were balanced out by economic indicators. he pointed to statcan’s april retail numbers with alberta at 5.7 per cent sales growth, higher than the three per cent canadian average, while open table showed restaurant activity had returned to 2019 levels.
carson said this was not so much due to increased sales but inflation pushing the price of goods higher.
she said alberta is averaging 1,500 insolvencies a month in 2023, eclipsing the record 1,400 a month experienced in 2019. other western canadian provinces are also reporting a similar spike in filings.
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“we’re seeing some people maybe are, ‘i want to get back to living my life again,’ and some of those are going to be people that are spending on credit,” said carson, noting this does not mean extravagant spending, just a return to day-to-day life coming out of the pandemic.
for those struggling with debt, she recommends getting in touch with a licensed insolvency trustee to help navigate options which include avoiding insolvency and bankruptcy.
twitter: @joshaldrich03
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