Is the new normal too expensive? Inflation creating affordability concerns

With Canada's annual inflation at its highest point in over 30 years, experts say Canadians can anticipate their cost of living to increase significantly, warning that prices will likely not decrease for some time.

According to Statistics Canada, the annual rate of inflation hit 6.7 per cent in March, the fastest year-over-year increase in the consumer price index in over 31 years.

StatCan noted in its consumer price index this is the highest reading since inflation hit 6.9 per cent back in January 1991 when the GST was introduced.

Experts say a number of global factors continue to impact inflation, specifically prices for oil and food, including Russia's war in Ukraine and supply chain issues due to the COVID-19 pandemic – issues that likely won't be resolved anytime soon.

Another factor, experts say is that wages have not increased with the sudden rise in inflation, limiting consumers' purchasing power across income levels.

As a result, everything from filling up your car to eating at a restaurant with friends is expected to cost more than what it used to.

CTVNews.ca looks at what Canadians can expect to cost more right now and how they may be able to save money amid rising inflation.

HOUSING AFFORDABILITY

Last week, the Bank of Canada increased its key policy rate by half a percentage point, raising the benchmark interest rate to one per cent with warnings that more rate hikes are to come this year.

Rising interest rates are expected to encourage saving and curb borrowing and spending, helping cool Canada's housing market and the cost of goods. But experts warn the dampening effect of higher interest rates won't be immediate.

Toronto-based real estate expert David Fleming says the interest rate increase will lead to a decrease in housing affordability for homebuyers.

"What we're talking about with an increase in rates is purchasing power decreasing," Fleming told CTV’s Your Morning last week.

If someone was previously approved for a home that costs $750,000, for example, they would only be able to afford something that costs $650,000 following a hike in interest rates, he said.

For those who already own a home, particularly anyone holding a variable-rate mortgage, they can expect to see a direct impact on mortgage rates, Fleming said. This also applies to those with personal or home equity lines of credit, as these products are directly linked to the central bank's benchmark rate.

Those with fixed-rate mortgages, however, will only see a change in rates once they renew their mortgage, Fleming said. He added those in a variable rate mortgage might want to look at locking in their mortgage to save on future hikes.

Experts have said further interest rate hikes may also impact renters, as landlords look to increase rent to balance their rising mortgage payments.

Don Drummond, an economist with Queen's University in Kingston, Ont., spoke to CTV News Channel on Saturday, saying he believes the BoC should have raised interest rates "quite a while ago" to prevent a higher percentage of Canadians from taking out variable mortgages.

Drummond noted that the default risk could be higher for these borrowers should rates rise further.

"We have an unusually high portion of mortgages are variable mortgages… so the increase in interest rates will feed into mortgages more quickly than it would a few years ago," he said.

Despite this, Drummond said mortgage rates are still "extraordinarily low by almost any basis in comparison, other than the last couple of years."

But with costs rising in other aspects of everyday life, such as food and gas, experts say some Canadians might not be able to manage even the slightest increase in mortgage payments or rent.

GAS PRICES

Dan McTeague, president of Canadians for Affordable Energy, says Canadians should brace for an expensive summer at the pumps as the price of oil continues to skyrocket, warning a $2 per litre price tag may become a common occurrence in many regions.

McTeague previously told CP24 the jump is due, in part, to the switch from winter to summer gasoline—a yearly event that typically drives prices up.

However, McTeague said many factors are compounding the price at the pumps, from a weak Canadian dollar and less investment in traditional fuel sources.

But he warns that summer prices could be driven even higher should there be any other disruptions to fuel production or distribution globally, such as a hurricane or pipeline disruptions, making a "bad situation worse."

"We will see, mark my words, $2 a litre on several days throughout the summer this year," he said.

Canadians say they are adjusting their budgets and cutting spending elsewhere, such as on groceries or travel plans, to offset the pain at the pumps, with many expressing concerns about being able to afford food or be able to get to work amid rising gas prices.

GROCERY COSTS AND DINING OUT

According to Statistic Canada's consumer price index, grocery store prices rose 8.7 per cent year-over-year in March 2022, the fastest annual rate since March 2009. StatCan said this was aided by the largest annual increase in dairy and egg prices since February 1983.

Russia's invasion of Ukraine has also been blamed for jumps in pasta prices and cereal, the latter rising at the fastest annual pace since June 1990.

While they haven't rose as significantly, StatCan reports that dine-in menu prices are also up 5.4 per cent year-over-year.

Sylvain Charlebois, Dalhousie University professor of food distribution and policy, told CTVNews.ca on Wednesday that food prices are "skyrocketing" and likely won't get back to pre-pandemic levels for some time.

"Right now, we're dealing with an unusual perfect storm and that includes higher input costs and, of course, supply chain problems incurred by the pandemic -- and that's not over because the new variant has actually created some new issues globally," Charlebois said in a telephone interview.

"So we're not we're not out of the woods yet when it comes to supply chain problems."

Charlebois said Canadians should actually expect further price increases for food. Due to rising inflation, Charlebois said food production costs have increased, resulting in higher price tags at grocery stores. Until those costs go down, he says neither will food prices.

However, to help limit the impact of inflation, Charlebois suggests Canadians consider planting a garden and limit their food waste as much as possible. This includes taking stock of what is already in one's pantry before going grocery shopping, as well as prepping meals ahead of time.

"Whatever you buy, eat it. Make sure you eat it. That's really the most important thing," he said.

EXPERT TIPS TO HELP TAME INFLATION

As inflation increases to levels not seen in decades, experts are advising Canadians to take advantage of coupons and points programs, and purchase affordable alternatives where possible to help mitigate the financial strain caused by rising prices.

Laurence Booth, a finance professor at the University of Toronto's Rotman School of Management, previously told CTVNews.ca in a telephone interview that the rising cost of gas, rent and groceries means Canadians need to "shop around" if they want to find the most affordable option for their budget.

"When they start looking at prices increasing, they substitute other items that they probably wouldn't have bought except for the fact that what they want has gone up significantly in price," he said.

"They'll substitute prices over commodities that haven't got up to the same degree."

Booth said the same goes for housing. He said renters and those looking to buy may adjust their searches to a one-bedroom apartment instead of two or a condo instead of a house, solely because of the price difference.

Beyond shopping for more affordable options, Anne Arbour, education manager at the Credit Counselling Society, says rising prices means Canadians need to focus more on tracking their expenses.

"It's getting back to basics and really knowing your numbers, because you don't know what impact [inflation] could be having if you don't know what you're actually spending," Arbour previously told CTVNews.ca in a telephone interview.

Arbour said it is important for Canadians to understand where their money is going in order to maintain a budget.

Arbour noted that there are multiple ways to stretch a dollar. She suggests using apps that monitor the flyers in one's area to find the best deals, as well as rebate programs that offer cashback. Arbour said rewards programs that offer discounts via the collection of points may also be an option.

"As long as you're not shopping in a way just to get the deals, but you're actually buying things that you will actually use and not throw out," she said.

With files from The Canadian Press, as well as CTVNews.ca writers Nicole Bogart and Jennifer Ferreira