TORONTO -- The 2020 COVID-19 pandemic upended both the way we spent our money and how much everything cost: Who knew a year ago we would stock up on endless amounts of toilet paper, pay obscene amounts of money for disinfectant wipes and forego some amazing travel deals to hermit at home?
Experts say the new year will likely continue to bring higher prices across many categories of spending, with demand for non-essential purchases potentially resuming towards the end of 2021.
“COVID shock has in a lot of ways changed the way people spend and what they're able to spend on. That’s had a different impact across the income spectrum,” said Nathan Janzen, a senior economist with RBC Economics Research.
From groceries to housing, here is a look at what will likely be more expensive -- or cost about the same -- in 2021.
GROCERIES
The cost of groceries is on track to have risen about 2.5 per cent in 2020, according to Janzen, and it is a trend that is anticipated to continue into the new year as the fall-out from the pandemic continues to be felt, with food inflation seen outpacing the general inflation rate.
While RBC is forecasting a 2 to 2.5 per cent rise in food prices for 2021, Canada’s Food Price Report is predicting a steeper rise of 3 to 5 per cent overall. Meat and vegetable prices are expected to increase between 4.5 and 6.5 per cent, while fruits are expected to cost between 2 and 4 per cent more.
Border, plant and distribution centre closures, labour shortages, logistics disruptions, unemployment, shifts in consumer demand, modifications in production, manufacturing, distribution, and retailing practices to enhance safety were all cited as key reasons why Canadian grocery bills went up, according to the report published by researchers at Dalhousie University with support from the University of Guelph, the University of Saskatchewan and the University of British Columbia.
That bill could climb another $695 more in 2021 compared to 2020 for a family of four, researchers predicted.
Meanwhile, a weaker Canadian dollar impacts the buying power of importers, meaning items coming into the country would also cost more. A slump in oil prices and a weak loonie in the spring pushed the price of imported goods higher in 2020, and the Dalhousie report suggests that this will also continue in 2021.
Agricultural commodity prices have not softened either and demand for raw commodity products will continue to translate to higher prices, Janzen added.
“If you look at the major categories, food prices have been the one that’s been leading the way … people still have to eat,” he said, adding that for those with lower wages, the cost of food will take up an even greater share of how they spend their income.
RETAIL
For many retailers and retail services, the costs associated with COVID-19 protocols -- from enhanced cleaning practices to protective gear and plexiglass shields for staff -- are likely to remain and be passed on to consumers.
“All retailers have had to spend more money [on cleaning] and I think it’s actually getting pushed to the consumer, whether it be in the product or the shipping or the return,” Farla Efros, president at HRC Retail Advisory told CTVNews.ca. Efros is expecting a five to 10 per cent price increase across the major categories within retail.
“I see an impact of the cost of goods going up significantly.”
She also noted that the pandemic has, in some cases, exposed the need to normalize better cleaning and hygiene protocols as well.
“This whole notion of cleaning, to be honest, I think it’s probably going to become the norm for quite some time … and [the higher prices] it’s going to be like the GST -- once it comes, it never leaves.”
Panic buying and the different phases of pandemic shopping also demonstrated that consumers are willing to pay more to get the items or services they need or want, Efros added. As retailers encounter shortages of an item, she expects to see more price flexing, where prices are adjusted accordingly.
“We want it when we want it,” Efros said. “It’s not even about instant gratification. It’s more about, ‘I’m still fearful that I’m not going to have it, so I’ll pay it … I don’t care, and I’m going to buy 10 of them.”
GASOLINE
2020 was a wild year for oil, with U.S. crude prices collapsing into negative territory for the first time in history in April, as coronavirus restrictions and their economic impact sent demand for oil plunging.
With many people working from home and making fewer road trips this past year, gasoline prices also sank to levels not seen in more than a decade. While prices are off 2020 lows, a major increase is unlikely as rising COVID-19 cases remain a concern and many companies continue to keep workers home.
“Energy prices are higher than they were say, over the summer, but they’re still below what they were a year ago,” said Janzen.
MORTGAGE AND INTEREST RATE
Mortgage interest costs already declined in 2020 for homeowners with a variable mortgage rate. That is expected to continue, especially for those renewing their mortgages at a lower rate, said Janzen.
With the Bank of Canada’s target overnight interest rate expected to remain at 0.25 per cent until 2023, the cost of borrowing will remain extremely low in 2021. Economists generally expect variable mortgage rates, which are linked to the central bank’s target rate, to continue to stay around current levels in 2021. Fixed mortgage rates are expected to rise, but remain below 2.5 per cent in 2021.
“As the vaccine rolls out across the country and there is optimism that the worst of the pandemic is behind us, Canadians can expect bond yields to rise, which will cause mortgage providers to modestly increase fixed rates,” according to James Laird, co-founder of financial products comparison website, Ratehub.ca.
HOME PRICES
The direction for housing prices will depend on who you ask -- and where you live, but for the most part, expectations are that prices will likely rise in 2021, particularly given the low interest rate environment and amid a high demand/low supply housing market.
The Canadian Real Estate Association (CREA) is predicting the 2021 national average home price to rise by more than 9 per cent to $620,400. Real estate firms like RE/MAX are predicting a four to six per cent rise, while Royal LePage is looking at a 5.5 per cent increase.
Expectations for prices to continue to climb come after the average national home price rose in the second half of 2020, following a tough second quarter. Prices are on track to increase more than 13 per cent on an annual basis, with housing sales expected to hit a record as well, according to CREA.
“They have definitely gone up and we’re expecting more of that … interest rates are very low. At the same time, a lot of things that higher income households would normally spend on are not available for purchase,” Janzen said. “A lot of extra cash has gone to boost the housing market.”
With Canadians continuing to work from home indefinitely in some cases, some experts also predict further demand for more space, especially further away from city centres.
Still, earlier predictions in the fall by Moody’s Analytics, for example, believe housing prices could take a hit in 2021, hurt by a weak labour market, oversupply in some parts of the country and out-of-reach pricing in major cities like Vancouver and Toronto.
A PwC report also expressed some doubt on stronger housing prices, noting that, “higher unemployment and economic uncertainty, combined with lower immigration, are expected to slow housing activity across Canada.”
Meanwhile, condo prices in urban centres are expected to fall in the first half of the new year before steadying in the back half, Ratehub.ca predicted.
“University students learning remotely, the lack of immigration, and the crack down on Airbnb will continue to weigh on condo prices. When students return to campus and borders reopen for new Canadians, demand will return to the condo market,” according to Ratehub.ca’s Laird.
TRAVEL
While prices for international flights spiked in some cases earlier this year, the overall average cost of airfare has fallen as much as 35 or more per cent in recent months, according to Airlines Reporting Corp (ARC). The firm, which provides flight ticket settlement services between airlines and travel agencies, says tickets will still fluctuate along the normal seasonal price curve even as it remains near historic lows.
It’s too soon to tell when the cost of travel will rebound back to pre-COVID levels, but there could be a surge in demand for travel and hospitality services towards the back end of 2021, Janzen said. It will all hinge on how the vaccine rollout progresses and to what extent a post-COVID normal life can resume.
“There's a lot of pent up demand for purchasing those kinds of services and a lot of it at this point is savings built up from people that just normally wouldn’t take a trip or weren’t able to over the last few years.” he added.
