inflation at the grocery store
iStock.com / Yellow Man

Almost a third of Canadians (30%) plan to cut spending next year, according to a BMO Financial Group survey that shows households are still feeling pinched, even as inflation eases and interest rates continue to fall.

The survey showed lingering concern about the cost of living and inflation among 54% and 50% of participants respectively.

Meanwhile, a similar CIBC poll found that inflation and the rising cost of household goods is a worry for 66% of those surveyed. Seventeen per cent said their top financial priority for the new year is paying down debt; 16% listed keeping up with bill payments as their first priority.

Canadians are tightening their belts even as they’ve seen relief on both inflation, now below 2%, and interest rates, after the Bank of Canada’s fifth consecutive rate cut in December lowered the overnight rate to 3.25%.

Heading into the new year, Canadians must contend with a slowing economy and increased economic uncertainty. Two in five BMO survey respondents (42%) and two-thirds (65%) of those participating in the more recent CIBC poll said they’re worried about a recession.

More than half the currently employed respondents in the CIBC poll (54%) cited job security as a concern. In the past 12 months, over a quarter of those surveyed (28%) took on more debt. The top reason cited was the increased cost of living (among 44%), followed by insufficient income to cover day-to-day expenses (29%) and a financial emergency (21%), CIBC found.

Further relief in interest rates is likely next year. BMO Economics expects the Bank of Canada to cut the overnight rate by an additional 75 basis points in the first half of 2025. It says additional declines in longer-term borrowing costs, which have already fallen sharply, will be more moderate as economic activity picks up.

Financial planning

Despite plans to curb spending next year, both surveys found most Canadians are generally optimistic about their financial future and feel they’re making progress on their goals.

“Financial priorities are shaped both by ambitions and by the economic environment —  and we’re seeing Canadians adapt to the current environment by learning new strategies, such as creating a budget or reducing spending, to help them stay on-track,” Carissa Lucreziano, vice-president, CIBC financial planning and advice, said in a release.

They could do more, however, as only a third currently have a financial plan and 59% don’t have a household budget set out for the new year, according to BMO. For those who have set financial goals (69%, according to the bank) the most popular include saving for retirement (58%), saving for a vacation (47%) and paying down debt (40%).

The CIBC poll was conducted between late November and early December by Ipsos. The BMO survey was conducted by Ipsos in the first half of September.