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Canadian Personal Bankruptcies Surge by 22.5% in Third Quarter; Economy Sputtering

Published: November 14, 2022
A woman walks Past the Bank of Canada building in Ottawa on April 12, 2011. Personal insolvencies in Canada surged more than 22 percent in the third quarter compared to last year as inflation, soaring interest rates and economic turmoil continue to plague Canadian’s pocketbooks. (Image: GEOFF ROBINS/AFP via Getty Images)

According to data, recently released by Statistics Canada, consumer insolvencies in Canada soared by 22.5 percent in the third quarter compared to the year prior, representing the largest percentage increase in 13 years. 

Compared with the second quarter, bankruptcy filings increased 2.3 percent however, consumer filings were down 25.5 percent compared with the third quarter in 2019, prior to the pandemic. 

Bankruptcy filings by both businesses and consumers were down during the pandemic, largely believed to be a result of heavy government subsidy programs. 

The surge in bankruptcies are believed to be the result of soaring inflation, rising interest rates and a struggling economy. Inflation in September in Canada was 6.9 percent.

The news comes as the Bank of Canada, Canada’s central bank, warns Canadians to brace for a tough winter.

Canada’s central bank has raised interest rates six times since March, from 0.25 percent to 3.75 percent and is warning that more rate hikes are on the horizon. 

Bank of Canada governor Tiff Macklem told the Canadian Broadcasting Corporation (CBC), “We do think we still need to raise rates a little bit further. How far, we will see.”

Like other central banks across the globe, the Bank of Canada has been increasing interest rates in an attempt to reign in historic levels of inflation, placing Canadians in a precarious situation as they struggle under a cost of living crisis.

Macklem admitted that Canada is heading towards, or is currently experiencing, a recession telling the CBC, “We actually think growth is going to be close to zero for the next few quarters, until about the middle of next year.”

The central bank believes that the slowdown in economic activity will be short and not very deep however the impact will be felt by numerous Canadians.

“[The] unemployment rate is going to go up. We’re not talking about high unemployment rates that we’ve seen in past recessions, but it is going to go up,” he said.


Current crisis is not like the 1970s

Jim Stanford, an economist and director at the Centre for Future Work, told the CBC that Canada’s central bank hiked interest rates too high and too fast, perhaps assuming both the cause and solution to the current predicament are the same as the inflation crisis of the 1970s and 80s.

Stanford said this is not the case. In the 1970s real wages were rising along with prices, a phenomenon not apparent today. In addition, corporate profits fell in the 1970s whereas today corporate profits have surged to record levels. 

“So this is the exact opposite of what we experienced in the 1970s. And pulling out a 50-year-old recipe and applying it again to today’s situation is absolutely inappropriate,” Stanford said.

Stanford recommends the central bank pause rate hikes as headline inflation falls and supply-chain issues, brought on by the pandemic, begin to resolve.  

Canada is preparing for the latest inflation numbers to be released on Nov. 16 however, Royal Bank of Canada (RBC) economist Claire Fan says she doesn’t expect the new data will do much to slow rate hikes.

“Consumer price growth in Canada likely ticked higher in October. We expect the annual rate to have risen to seven per cent, up from 6.9 percent in September but still down from the 8.1 percent recent peak in June,” Fan said in a note to clients.

She says that soaring gas and fuel oil prices will continue to prompt the Bank of Canada to push rates higher. 

“While there are signs that inflation is past its peak in Canada, it will likely take a sustained period of higher interest rates and a weaker economy for price growth to ease fully back to central bank target rates,” she wrote.

It’s expected that the Bank of Canada will hike rates by another 25 basis points in early December and then pause to assess the impact on the broader economy. It means Canadians with a variable rate mortgage or a home equity line of credit will be seeing yet another hike to their monthly payments.