Canadian inflation could be halved by end of year: report

How many hours a week do you spend worrying about money?

Well, you may be getting a break with a prediction the inflation rate will fall even faster in the months ahead.

A report from RSM Canada, a global consultant and auditor, predicts rising prices will slow down significantly this year with the inflation rate potentially dropping by half to three per cent by the end of 2023 and falling further to two per cent in 2024.

That two per cent inflation mark is significant — it is the target the Bank of Canada is trying to reach as it has ratcheted up interest rates.

While most economists think the central bank might be done with those rate hikes for now, as inflation dropped to just below six per cent in January, RSM predicts a more aggressive stance. It believes continued hikes through the middle of 2023 are to come, with the key overnight rate peaking at 4.75 per cent keeping financial conditions tight.

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“With inflation still elevated and demand surging in Canada, we expect the Bank of Canada to continue raising interest rates to cool an overheating economy,” said Joe Brusuelas, chief economist for RSM.

“Despite some positive signs, growing headwinds are hurting the Canadian economy to the point where the rising risk of a recession and a larger-than-expected housing contraction cannot be dismissed.”

While RSM believes Canada will probably avoid a recession, it still predicts a significant slowdown for the economy, in large part because of the drop in consumer confidence.

“Interest-rate-sensitive parts of the economy, like housing and big-ticket consumer purchases, are starting to see the impact of the increased cost of credit, though the effects of higher rates will take more time to register,” the report noted.

“Waning consumer confidence and slowing retail sales, induced by persistent inflation, will translate into lower GDP growth in 2023 and 2024.”

That may also be reflected in a poll from Scotiabank, finding the average Canadian now spends the equivalent of a part-time job worrying about money — 15 hours a week, up from 10 hours a year ago.

“Canadians continue to feel the impact of higher prices on their wallets, and this is leading to more time spent worrying. For most Canadians, their income has not kept pace with the rising costs of what they buy, with groceries and gas continuing to be the biggest drivers of strain for households,” said Kingsley Chak, a senior vice president at Scotiabank.

The “worry poll” suggests Canadians spend the most time fretting over day-to-day expenses (44 per cent), paying off debt (39 per cent), and saving for emergencies (38 per cent).

One in five expect their financial situation to get even worse in the next six months and more than half of respondents are making small concessions on the things they want in order to afford the things they need.