The Bank of Canada's increases in June and July are expected to have an outsized impact on economic activity Amid sustained economic pressure from the Bank of Canada’s higher interest rates, consumer spending is likely to decelerate in the third quarter, according to market observers. The double whammy of the central bank’s latest hikes, which rapidly pushed up the policy rate to 4.75% in June and then to 5% in July, will force Canadians to reduce their discretionary purchases in the very near future, said Stephen Tapp, chief economist at the Canadian Chamber of Commerce. “We do expect that consumers will be under increasing strain, particularly those folks that are borrowing,” Tapp told the Financial Post. “They have to service their debt, they’re going to have to cut back on something, and they’ll be cutting back on discretionary spending.” A new poll by TransUnion pointed to a similar trend, with 54% of Canadians indicating that they are planning to reduce their discretionary spending in the current fiscal environment. Other likely cutbacks will be on digital services (21%) and subscriptions or memberships (26%). And while the Canadian economy continues to hold up “remarkably well”, “for the average person, the average consumer, they may not be feeling like it’s a great time right now, even if it’s not necessarily measured as a recession,” Tapp said. RBC economist Carrie Freestone said that the BoC hikes are starting to make themselves felt in a major way. “I think the fact that we’re starting to see softness in discretionary goods is probably an early sign that rate hikes are starting to have an impact,” Freestone told the Financial Post. “So I think that eventually that will spill over into the services sector. We just haven’t seen it yet.” Ephraim Vecina Share July 24, 2023