By now, Canadians are largely wise to climbing inflation and interest rates and the impact that these will have on their way of life.

Last week, the Bank of Canada released two reports that revealed a high awareness amongst businesses and consumers about rising inflation. The consumer survey in particular touched on the fact that people are hedging their general spending and putting off big-ticket expenditures to offset inflationary pressures.

This week, MNP, the largest insolvency practice in Canada, released data breaking down how Canadians are beginning to cope with the rising rates and costs of goods.

According to the latest MNP Consumer Debt Index, 59% of Canadians are already feeling the effects of interest rate increases. That number is up seven points since last quarter. As such, 46% are cutting back on non-essential expenses like travelling, dining out, and entertainment, 37% are swapping their routine purchases for cheaper options, 30% are driving less to offset gas spending, and 27% are cutting back on essentials like food, utilities, and housing.

The data gets more granular when it comes to women versus men. Women are more likely to have to cut back on non-essential and essential expenses compared to men, with only 12% of women indicating that they don’t have increased expenses to account for.

It's all very alarming, and Grant Bazian, President of MNP LTD., is not optimistic that these conditions will let up any time soon. 

"With inflation nearing a 40-year high, there is mounting pressure for more aggressive interest rate hikes to tame inflation," he says. "Canadians who are not financially prepared to absorb future interest rate increases are likely to find themselves in financial trouble soon, as they are unable to manage the increasing costs of their debt repayment obligations."

With the central bank's next interest rate decision looming, Canadians are justifiably worried about their future finances. MNP's data indicates that 58% of Canadians are concerned about the impact of rising interest rates on their financial situation, 24% are not financially prepared for an interest rate hike of one percentage point, 56% are concerned about paying off existing debt, 55% are concerned about covering living and family expenses in the next year without facing further debt, and 42% regret the amount of debt they’ve taken on in life.

Going forward, 82% of Canadians are planning to be more judicious with spending because of interest rate worries, but Bazian warns that simply being more frugal may not be enough to stave off financial problems in the future.

"No matter where Canadians turn, there is no reprieve; housing is more expensive, driving a car is more expensive, food is more expensive," he says. “Right now, many Canadian households are trying to adjust their budgets, cutting costs where they can in order to keep up with their monthly bills. But as the cost of living continues to rise, it’s likely to get worse before it gets better. Households will have to make increasingly difficult choices about what to cut, and could find themselves piling on debt to make ends meet."

Personal Finance