Consumers see improvement in financial health: Bank of Canada

In the fourth quarter of 2024, consumers perceived an improvement in their financial health relative to the previous quarter, mainly due to recent interest rate cuts and consumers’ expectation of further cuts ahead. This contributed to improved consumer sentiment, according to the latest Canadian Survey of Consumer Expectations – Fourth Quarter of 2024 released Monday by the Bank of Canada.

Key findings from the survey:

• Fewer consumers reported that they are spending less or plan to reduce their spending; and, for the first time since 2021, people said they expect their spending to increase faster than they expect prices to rise. Still, consumers reported that the high prices of many goods and services, economic uncertainty and elevated housing costs continue to weigh on spending decisions.
• Confidence in the labour market weakened in the fourth quarter and is now slightly below the survey average. Survey results show that young consumers and those with a high school diploma or less education perceived more weakness in the labour market than other respondents did. Expectations for wage growth remain unchanged from last quarter, still above where they were before the COVID‑19 pandemic.
• Consumers’ inflation expectations have largely returned to historical norms. But perceptions of current inflation and the level of disagreement among consumers about where inflation is heading next year remain elevated.

“In this survey, consumers perceived an improvement in their financial health, said the Bank in a news release. “Fewer consumers than last quarter reported that their finances had worsened over the past 12 months. In addition, more consumers said they see access to credit as easier than before, and more expect access to continue to improve.

“These positive developments, which are broad-based across both renters and homeowners, partly reflect recent interest rate cuts and consumers’ expectations of further cuts. In contrast, despite this general improvement in perceived financial health, the perceived risk of missing a debt payment increased. This is notably the case for renters, who, according to survey results, generally experience more affordability issues than homeowners. This result echoes the assessment last spring in the Bank of Canada’s Financial Stability Report—2024, when signs of increased financial stress appeared more concentrated among renters.”

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