Alberta economists predict Canadian consumers will be 'cautious' with holiday spending

Customers shop at Vince’s Market, a grocery store in Sharon, Ont., on Nov. 21, 2024. (Chris Young/The Canadian Press)

With Black Friday sales already in play and with Christmas a month away, the holiday shopping season is underway as Statistics Canada revealed last week the country's inflation rate climbed back up to two per cent in October.

But even though the two-per-cent increase is in line with Bank of Canada targets, one Alberta-based economist says Canadians are "going to be very cautious," because while inflation has slowed down, prices haven't gone down.

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"We do see them spending a little bit more than last year, but keep in mind that last year was a very difficult period with very high interest rates, before the Bank of Canada started lowering its interest rates and we had higher inflation, so it's not really a fair comparison to last year," Mark Parson, the chief economist for ATB, told CTV News Edmonton on Sunday.

"It could be better than last year, but people are still going to be going out bargain hunting, maybe buying a little bit less than normal because of some of these headwinds they're still facing, these higher interest rates and then coming off a period of high inflation."

While the two-per-cent inflation statistic is lower on average than it was a year ago, October's stat is up from 1.6 per cent in September as gasoline prices exerted less downward pressure on annual price growth.

The report from Statistics Canada on Tuesday says prices in October increased at a faster annual pace in five out of the eight major components of the consumer price index.

Chief to the challenge of affordability is wages. Moshe Lander, an Alberta-based economist with Montreal's Concordia University, told CTV News Edmonton last week that the wage of the average Canadian wages has been lagging behind the inflation rate for most of the last two years.

Lander says the average price of a basket of goods purchased by a typical Canadian consumer has gone up by 20 per cent over the last four years.

"If inflation is two per cent but you're only getting a one-per-cent raise, your standard of living is actually falling. Even though you've gotten a raise, the raise hasn't kept pace with inflation," Lander said.

"The issue for most Canadians now is, 'Am I getting a raise that keeps pace with my personal inflation rate?' If you are, you're good, if you're not, unfortunate."

Parsons said while prices aren't going down, they are growing at a slower rate, meaning the Bank of Canada can continue to lower its short-term interest rate, something it's done four times already this year, most recently by half a percentage point in October to bring it down to 3.75 per cent.

The central bank is still expected to continue cutting interest rates in the coming months, including in December.

The size of the next rate cut, however, will be driven by the central bank’s interpretation of economic data, including the October inflation figures.

Parsons said people are still being cautious while shopping regardless.

"What it does mean is that prices are still so much higher today than they were," he said. "We're not seeing a reversal these price trends, but they're just growing at a slower lower rate. What people are seeing is when they go to the store is that prices are still really expensive, and we're kind of seeing that feed through in the data on retail spending.

"It's still not as strong as it used to be, and it's taking a while to come back up."

With files from CTV News Edmonton's Miriam Valdes-Carletti, Shelby Clarke and The Canadian Press