The day after a hawkish Bank of Canada hiked its rate and signalled more to come, studies reveal that Canadians are once again running up debt.
New data from Equifax Canada out today show average monthly spending on credit cards rose 17.5% in the first quarter from last year.
“Pent-up demand and increased travel with the easing of COVID restrictions, combined with soaring inflation have led to some of the highest increases in credit card spending we’ve ever seen,” said Rebecca Oakes, vice-president of Advanced Analytics at Equifax Canada.
“Unfortunately for consumers, this is also at a time when the Bank of Canada is raising interest rates.”
The Bank of Canada hiked it key overnight rate 50 basis points to 1.5% yesterday and signalled more hikes to come.
While the half point rise, only the second in two decades, was widely expected the hawkish tone of the statement caught economists’ attention.
Especially its last sentence.
“The Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the two per cent inflation target.”
Some took this as an “ominous hint” that a 75 bp hike was on the table for the Bank’s next decision in July.
“That phrase introduces the risk of a 75 bp hike at the next meeting in July, though such a drastic move would likely need to be accompanied by another unexpected acceleration in inflation,” wrote BMO strategist Benjamin Reitzes in a note entitled “Top Hawk.”
While BMO still expects the Bank’s rate to peak at 2.5%, risks of a higher end rate have increased after that “very hawkish statement.”
Higher rates could come as a nasty shock to some Canadians as consumer debt climbs.
Equifax said total consumer debt increased 8.6% in the first quarter, climbing to $2.3 trillion over the past year. The average debt per person is also up for the first time since 2019, rising to $20,744, a 1.5% increase from 2021.
New card volumes soared 31.2% from 2021 and lenders are extending credit on new cards to an average of more than $5,500, the highest in seven years.
In another study out today, TransUnion reports that Canada’s credit card market is surging. Total credit balances rose 9.2% in the first quarter from the year before and are up 13.8% from the first quarter of 2020.
“After a year of reduced activity, consumer demand for credit cards is returning, and card issuers are moving into growth mode,” said TransUnion.
Interest rate hikes have already dampened the mortgage market, with new mortgage volume down 13.2% this quarter compared to the highs of 2021, but levels are still above what was seen before the pandemic, said Equifax. Ontario and B.C., Canada’s priciest markets, saw the biggest drops at 15.7% and 17.6% respectively.
New HELOCs were 6.6% higher than the first quarter last year.
Also noteworthy is the number of Canadians with multiple mortgages continues to rise. The 17% with more than one active mortgage is 2.5% higher than in 2021 and 9.3% higher compared to the last period of higher interest rates in 2018, said Equifax.
Canada’s low delinquency rates seen through the pandemic are starting to creep up, especially among younger people. For the under 25 and 25-34 age groups, non-mortgage delinquency rates up by 20.9% and 5.1% from the last quarter, respectively.
“While overall delinquency rates are still far below pre-pandemic levels, we anticipate a steady rise in delinquency until the end of the year,” said Oakes.