Canadian consumers and businesses are feeling the toll of high inflation and ever-increasing interest rates.
A new report by the Canadian Association of Insolvency and Restructuring Professionals found consumer insolvencies jumped by 33 per cent year-over-year in January 2023, as many Canadians are unable to pay off their debts and find themselves more financially vulnerable than before.
“The impacts of high inflation and numerous interest rate hikes are taking their toll on Canadians, particularly those who are deeply indebted and therefore more financially vulnerable,” said André Bolduc, a licensed insolvency trustee and vice-chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), in a press release Wednesday.
“These individuals and families may turn to credit cards or lines of credit to bridge the gaps in their household budgets — to pay for groceries and essentials, for example. In the higher interest rate environment, it is harder to pay off these debts.”
Consumer insolvency rates up year-over-year
On a month-over-month basis, consumer insolvency filings in January 2023 increased by 14.2 per cent from December 2022, according to statistics from the office of the superintendent of bankruptcy.
Insolvency is defined as a state of financial distress, when an individual or company can no longer pay their debts. It differs from bankruptcy, which is the formal legal process of declaring an individual or company does not have enough money to repay what they owe. In short, someone must be insolvent to file for bankruptcy.
A total of 8,735 consumer insolvencies were filed in January, the report found. Though the number is significantly greater than last year, it is still 20.8 per cent lower than in January 2020, before the pandemic.
Canadian businesses suffering amid stressful conditions
By comparison, business insolvencies have surpassed pre-pandemic levels, the report found, as many organizations continue to struggle with dwindling margins and the lingering effects of the pandemic and supply chain disruptions.
Some 331 businesses filed for insolvency in January 2023, according to CAIRP, up more than 55 per cent year-over-year and 7.5 per cent higher from rates before the pandemic in January 2020.
“It has been a tough start to 2023 for Canadian businesses. Many are struggling to manage the impact of higher interest rates, inflation and the continuing effects of the pandemic,” said Bolduc.
“Not factored into the insolvency numbers are the struggling small business owners who choose to walk away altogether, rather than take formal steps to wind down the business,” he added.
Inflation, interest rates remain high
Despite easing slightly, inflation remains high at 5.9 per cent annually, according to the latest numbers announced by Statistics Canada earlier in February. In particular, food prices continue to soar, as anti-poverty activists and economists say Canadian households are certainly feeling the bite.
Canadians are also feeling the pinch of increased interest rates. In January, the Bank of Canada announced its eighth consecutive interest rate hike, raising the overnight lending rate by a quarter of a percentage point to 4.5 per cent, despite calls from some experts to pause the increases.
Joshua Chong is a Toronto-based staff reporter for the Star’s Express Desk. Follow him on Twitter: @joshualdwchong
This content was originally published here.
