TORONTO — Canadians are putting off summer vacations, new car purchases, and reining in budgets so they can better handle higher gas and food prices and reduce their debts, according to a survey by Royal Bank.
The Canadian Consumer Outlook Index released Wednesday suggests Canadians are looking for ways to save as they grapple with gas prices that rose 29.5 per cent in May alone and food prices that grew 4.2 per cent that month.
“We think food and energy prices, as they move up, they act in a similar manner as a tax hike so it diverts money towards groceries and the gas tank whereas previously that money would be available for other spending,” RBC chief economist Craig Wright said in an interview.
“When people look at their overall spending capacity and they’re made aware of the fact that they have to put some more into the basics and they have to pull back somewhere and that somewhere seems to be the larger purchases and vacations.”
The survey was released the same day Bank of Canada governor Mark Carney warned in a speech that agricultural product prices are substantially higher since interest rates last went up, and will continue to rise.
“As we tried to explain in April, our expectation was that these food prices would come into the economy over about a six-month period. That’s been the historic experience and that’s exactly what’s happening,” he said when delivering the central bank’s July monetary policy report.
“So there’s a bit more to come, given the recent rises in food. Food, unfortunately, is going to remain relatively expensive and get a little more expensive in the coming months.”
In its report, RBC said 55 per cent of the 4,008 Canadians it polled are doing more comparison shopping for food, 48 per cent are cutting back on impulse buys, and 30 per cent of those surveyed said they are more likely to delay vacation plans until 2012.
The bank also found that 31 per cent are putting off a new vehicle purchase and making do with their current one longer than usual. Others reported that they are using their vehicles less, making fewer trips, and using public transit more.
Those Canadians surveyed carry an average of $13,058 in personal debt, not including mortgages, and fewer respondents feel confident they’re managing their debts well, compared with the previous survey three months ago, the bank found.
The respondents said they are focusing on reducing what they owe, spending less, and saving or investing more.
“It speaks to the caution, whether consumers are worried about managing their debt loads or whether they’re worried about some of these risks that are currently off Canadian shores washing onto Canadian shores,” Wright said, alluding to the European debt crisis.
Four-in-ten Canadians surveyed said they expect their personal financial situation to improve over the next year, while a similar number are optimistic that the national economy will improve over the same time period.
Increased demand, combined with disasters in major food producing countries — floods and drought in Australia, drought in Russia and floods on the Canadian Prairies — have driven food commodities prices up 41.8 per cent compared with last year, according to a report by Scotiabank released this spring.
Crude and gas prices have increased along with unrest in oil producer Libya. The higher price for gas used by trucks to deliver food adds to the price Canadians pay at the checkout.