Consumers cope as prices rise

Canadians are digging in and watching their pennies, finding new — and old — ways to cope as the country’s highest inflation rate in eight years smacks up against record consumer debt levels.

According to the RBC Canadian Consumer Outlook Index, released Wednesday, Canadians are carrying an average $13,058 in personal debt — not including mortgages — and the number who feel they’re managing that debt well is falling — down to 30% in this quarter, compared to 38% in the last quarter.

The latest consumer price index from Statistics Canada showed the inflation rate hit an eight-year high of 3.7% in May, driven by a 29.5% jump in the price of gasoline and a 4.2% increase in food prices. The economy is currently in a sluggish state — economists are projecting growth of around one per cent in the second quarter —which means incomes are unlikely to keep up with inflation, putting many Canadians firmly in the position of having to make do with less.

The RBC report suggests that consumers are taking the bull by the horns — reducing debt levels is the top financial priority of 32% of Canadians, followed by spending less (28%) and saving or investing more (24%).

“Canadians are continuing to focus on managing their debts — a very good sign as we enter the second half of the year,” said Richard Goyder, the bank’s vice-president, personal lending. “It’s encouraging to see consumers are trying to live within their means and seeking out very practical ways to not only pay their bills but also to save and invest.”

Among those very practical ways is comparison-shopping for food, which 55% say they’re doing more often; 48% say they’re paying more attention to their budgets and doing less impulse-buying; and 29% say they’re using their vehicles less and relying more on public transit or the very old-fashioned shoe leather to get around.

On top of those day-to-day money management strategies, 30% of Canadians are likely to delay vacation plans until next year, and 31% are making their current car go that extra mile before replacing it.

While the consumer outlook index has fallen two points from the first quarter, RBC Economics predicts the economy will continue to improve through to next year.

“Overall, we’re forecasting that the Canadian economy will grow at a respectable clip over the next two years,” said Craig Wright, senior vice-president and chief economist. “Supported by the continued economic recovery being projected for the U.S., we expect Canada’s economy to expand by 3.2% in 2011 and 3.1% in 2012.

Data for the consumer outlook index was collected online via 4,008 Canadians taking part in Ipsos Reid’s national I-Say consumer panel, between June 9 and June 14. The margin of error in a survey this size is estimated at 1.65 percentage points, 19 times out of 20.