Inflation forcing Canadians to tighten belts again

Persistent high inflation is making Canadians return to their pandemic downturn behaviours – including cutting down on non-essentials and trading down to cheaper alternatives.

The latest edition of EY’s Future Consumer Index Survey found 80% of Canadian consumers are concerned about their finances amid the rising cost of living. Low-income Canadians were most concerned (87%), followed by middle-class (77%) and high-income (64%).

Low-income Canadians devote a larger portion of their overall budget to rent, food, and transportation – all of which have skyrocketed in cost. They are also less likely to have savings or investments to fall back on in hard economic times.

Canadians don’t expect things to get better soon, with 69% of respondents predicting their cost of living will increase further in the next six months.

Canadian consumers are tightening their spending by buying second-hand products (25%) and repairing instead of replacing products (69%). A further 72% of respondents said they no longer feel the need to keep up with seasonal fashion trends.

“Stunted by inflation, consumers are turning back to pandemic-induced behaviours – prioritizing savings over spend,” Monica Chadha, EY Canada retail leader, said. “This trend towards limiting non-essential spending and looking for more sustainable alternatives presents a challenge to fast fashion retailers.”

Squeezed consumers also have less leeway to buy “green,” with 68% put off from purchasing sustainable products due to higher price points.

And now for something completely digital

Driven by younger and more affluent consumers, fewer than 1 in 10 Canadians say they have used digital currency, experienced the metaverse, or purchased a virtual product. In its current practical application, the metaverse exists within popular social multiplayer videogames such as Fortnite and Minecraft where children can buy “griddy dance” emotes for their Darth Vader avatar.

“Newer forms of digital goods and services present opportunities for companies to invest in developing channels to differentiate their brand experience, innovate, and capture more consumer data,” Elliot Morris, EY Canada grocery and consumer packaged goods leader, said. “But it’s important to keep in mind that as the digital world expands, consumers will become increasingly cautious when sharing their personal information.”

Over half of respondents are wary of sharing personal information digitally due to data breaches, Identity theft, fraud, and other concerns.