Canadian inflation is at 7.7%, the highest level since 1983. And that soaring inflation is hurting the average Canadian, so much so that 45% say they are worse off now than they were last year at this time. That’s the highest level since at least 2010.

With the Bank of Canada expected to announce a 75-basis-point rate hike in July, it’s going to get worse. When asked about the coming 12 months, one third of Canadians said they expect the situation to be even worse. The number of pessimistic Canadians is also at the highest level in more than a decade.

That gloomy outlook is certainly justified. Factors contributing to that glum forecast include rising gas prices and groceries. Half of Canadians say they are having difficulty paying for their groceries, a seven-point jump since October. On top of that 33% say their gas costs have escalated over the last month with approximately 50% of Canadians saying it has actually decreased, but that’s only because they found alternative ways to get around.

Rising interest rates are also hitting homeowners hard with 22% saying their mortgage payments have increased and 53% saying it hasn’t happened yet, but they expect it to. One in four say rising interest rates could force them to even sell their homes.

Unfortunately, a growing number of Canadians are cash strapped with 35% saying their monthly budget can’t handle an increase of $150. If that increase climbed to $300, more than half (53%) say they would have to make major changes, or just couldn’t afford it.

Is Canada Headed for a Recession?

The skyrocketing cost of living is not just going to hurt the average Canadian, but it’s also going to punish Bay Street and Wall Street. Especially if Canada tips into a recession over the coming quarters. And with the Bank of Canada implementing oversized rate hikes, the odds of a recession in the next year has increased to more than 50%.

Even if Canada doesn’t fall into a recession, just the fear of one can slow everything down. This means the demand side could take a big hit. In addition to hindering consumer demand, rising interest rates will also undermine corporate growth. The higher cost of borrowing also suggests businesses could start laying people off.

Admittedly, Canadian economic output has actually been pretty decent in 2022. But it’s not going as well south of the border. In the first quarter, the U.S. economy shrank 1.4%; that represents the first contraction since the pandemic-fuelled recession.

Why does that matter? The U.S. is the world’s biggest economy and Canada’s largest trading partner. Economic challenges in the U.S. have a way of hurting the Canadian economy. In fact, it’s difficult for Canada to avoid a recession when the U.S. reports one quarter of contraction.

There is, according to one economist, “an incredible level of synchronization” between Canada and the U.S.

Fears of a potential recession are already impacting the stock market, with energy stocks, and the TSX, taking a hit. Copper prices are at a 16-month low while steel and aluminium prices are down sharply too. Oil and gas prices are still elevated but a broad-based recession would slash demand.

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With inflation at its highest level in 40 years and interest rates on the rise, the Canadian economy has entered a period of great uncertainty. Canadians are already spending less, but a recession means they will need to prioritize their spending even further. While this cannot help but negatively impact the stock market, the trading experts at Learn-To-Trade.com can show investors how to profit no matter what the economy is doing.

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