Despite Canada’s ratio of household debt to disposable income record high of 164.1 per cent in the third quarter of last year, consumers are still driving growth in Canada’s economy, with indicators showing faster inflation led by higher food and clothing costs.
The consumer price index increased to a two–year high of 2.4 per cent in June, and a 13.3 per cent jump in automobile receipts led to a 2.2 per cent rise in wholesale sales according to Statistics Canada. Even home sales increased according to a July realtor report to a four-year high with prices up 6.9 per cent from last year.
Food costs rose 2.9 per cent in June from a year earlier, faster than the May pace of 2.3 per cent. Meat costs rose 9.4 per cent and fresh vegetables gained 9.5 per cent. Clothing and footwear inflation accelerated to 1.6 per cent from 0.6 per cent as retailers offered fewer discounts according to Statistics Canada.
The central bank, that is mandated to keep consumer-price increases in the middle of a 1 per cent to a 3 per cent band, said recently that “underlying inflationary pressures remain muted,” and “beyond the near term, the inflation projection is little changed from three months ago.”
The Canadian dollar very recently gained in value to C$1.0710 in reaction to the retail sales report reflecting these increased costs. Canada’s economy is showing gradual signs of improvement on the backs of indebted consumers.
With interest rates remaining at bay at 1 per cent for the past few years, consumers have been able to shoulder the increased costs of retail and food; but that won’t last for much longer. When the inevitable occurs and interest rates rise, consumers will feel the pinch in their pockets when their debts finally catch up with them. How will the economy fair when that happens?
It’s obvious we are riding a slippery slope when it comes to managing our finances and debts. However we continue to spend and take on more debt as retailers increase costs. Let us know what your plan is for managing your money and debts. Knowledge and self discipline is power in this game. Share your ideas with the rest of our readers!.
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