Interest rate uptick spells trouble for housing market and consumer expenditures

Sylvain CharleboisThe Bank of Canada has once again increased its benchmark interest rate, this time by .25 basis points to five percent, amid growing apprehension from a number of financial experts regarding its potential impact on consumers. And their concerns are not unfounded.

Let us examine the evidence …

Undoubtedly, food and housing constitute the fundamental necessities of life. Pertinent data reveals that the cost of housing exerts a considerable influence on our grocery expenditures. Notably, despite prevailing inflation, the latest quarterly results from Empire/Sobeys/IGA indicate a $16 million decline in food sales compared to the corresponding quarter of the previous year. That’s right, $16 million. Similarly, Loblaw/Provigo experienced a mere 3.1 percent increase in food sales over the past year, despite inflation consistently exceeding nine percent for the preceding 12 months. Metro witnessed a modest 5.8 percent rise in food sales at their stores during the last quarter.

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In essence, retailers are, at best, merely sustaining their food sales. Consumers may be visiting restaurants more often, but we are all actively pursuing special offers, forsaking national brands, and gravitating towards more affordable stores. While food prices are undeniably rising, discounted products can still be found. On average, supermarkets proffer a range of 15,000 to 60,000 products, contingent upon the shopping locale. Consequently, alternatives do exist.

Conversely, housing presents significantly disparate and less accessible options.

The past year has proven challenging for almost everyone due to escalating interest rates. Particularly, rental costs in Canada have surged in recent months. For instance, the average monthly rent for a one-bedroom apartment is presently $1,828, according to, a 13.03 percent increase over a single year, amounting to an additional $238 per month. Consequently, tenants of one-bedroom apartments must now bear a rent that exceeds the preceding year’s by nearly $3,000.

The same scenario also applies to two-bedroom apartments. The average monthly rent in Canada stands at $2,243, reflecting a 10.7 percent surge over a year, with approximately one-third of Canadians renting their residences.

Homeowners and mortgage borrowers face an even more alarming situation. For those who acquired a $500,000 house last year, with a 25-year mortgage with a 20 percent down payment, the monthly payments hovered around $1,700, subject to the prevailing interest rate. These payments have now surpassed $2,800 per month, or $1,100 more per month and nearly $13,000 more annually. Maintaining the same standard of living under such circumstances necessitates a considerable financial commitment. Moreover, over time, many households find themselves compelled to renegotiate their mortgages at significantly higher interest rates.

In contrast to the relative accessibility of substituting grocery items, effecting changes concerning rent or mortgage payments proves more arduous. Such adjustments entail either selling and relocating or seeking a roommate to share the burden of housing costs. Regardless of the chosen course of action, associated expenses inevitably accompany a change of address.

The statistics underscore the financial strain endured by Canadians, held captive by the exorbitant costs of housing and consequently compelled to make compromises in their grocery expenditures. These compromises encompass both financial considerations and nutritional factors – this is the new reality.

Given the foreseeable persistence of rising rents and mortgage rates, the prevailing macroeconomic context compels us all to embrace a more frugal mindset reminiscent of the trends experienced in the early 1980s. During that era, promotional products not only experienced temporary surges in popularity but became the norm for many households.

Although the prospect of abundance and indulgence will eventually resurface, it will require some time to materialize.

Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

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