TORONTO -- The 2020 COVID-19 pandemic upended both the way we spent our money and how much everything cost: Who knew a year ago we would stock up on endless amounts of toilet paper, pay obscene amounts of money for disinfectant wipes and forego some amazing travel deals to hermit at home?
Experts say the new year will likely continue to bring higher prices across many categories of spending, with demand for non-essential purchases potentially resuming towards the end of 2021.
鈥淐OVID shock has in a lot of ways changed the way people spend and what they're able to spend on. That鈥檚 had a different impact across the income spectrum,鈥� said Nathan Janzen, a senior economist with RBC Economics Research.
From groceries to housing, here is a look at what will likely be more expensive -- or cost about the same -- in 2021.
GROCERIES
The cost of groceries is on track to have risen about 2.5 per cent in 2020, according to Janzen, and it is a trend that is anticipated to continue into the new year as the fall-out from the pandemic continues to be felt, with food inflation seen outpacing the general inflation rate.
While RBC is forecasting a 2 to 2.5 per cent rise in food prices for 2021, is predicting a steeper rise of 3 to 5 per cent overall. Meat and vegetable prices are expected to increase between 4.5 and 6.5 per cent, while fruits are expected to cost between 2 and 4 per cent more.
Border, plant and distribution centre closures, labour shortages, logistics disruptions, unemployment, shifts in consumer demand, modifications in production, manufacturing, distribution, and retailing practices to enhance safety were all cited as key reasons why Canadian grocery bills went up, according to the report published by researchers at Dalhousie University with support from the University of Guelph, the University of Saskatchewan and the University of British Columbia.
That bill could climb another $695 more in 2021 compared to 2020 for a family of four, researchers predicted.
Meanwhile, a weaker Canadian dollar impacts the buying power of importers, meaning items coming into the country would also cost more. A slump in oil prices and a weak loonie in the spring pushed the price of imported goods higher in 2020, and the Dalhousie report suggests that this will also continue in 2021.
Agricultural commodity prices have not softened either and demand for raw commodity products will continue to translate to higher prices, Janzen added.
鈥淚f you look at the major categories, food prices have been the one that鈥檚 been leading the way 鈥� people still have to eat,鈥� he said, adding that for those with lower wages, the cost of food will take up an even greater share of how they spend their income.
RETAIL
For many retailers and retail services, the costs associated with COVID-19 protocols -- from enhanced cleaning practices to protective gear and plexiglass shields for staff -- are likely to remain and be passed on to consumers.
鈥淎ll retailers have had to spend more money [on cleaning] and I think it鈥檚 actually getting pushed to the consumer, whether it be in the product or the shipping or the return,鈥� Farla Efros, president at HRC Retail Advisory told CTVNews.ca. Efros is expecting a five to 10 per cent price increase across the major categories within retail.
鈥淚 see an impact of the cost of goods going up significantly.鈥�
She also noted that the pandemic has, in some cases, exposed the need to normalize better cleaning and hygiene protocols as well.
鈥淭his whole notion of cleaning, to be honest, I think it鈥檚 probably going to become the norm for quite some time 鈥� and [the higher prices] it鈥檚 going to be like the GST -- once it comes, it never leaves.鈥�
Panic buying and the different phases of pandemic shopping also demonstrated that consumers are willing to pay more to get the items or services they need or want, Efros added. As retailers encounter shortages of an item, she expects to see more price flexing, where prices are adjusted accordingly.
鈥淲e want it when we want it,鈥� Efros said. 鈥淚t鈥檚 not even about instant gratification. It鈥檚 more about, 鈥業鈥檓 still fearful that I鈥檓 not going to have it, so I鈥檒l pay it 鈥� I don鈥檛 care, and I鈥檓 going to buy 10 of them.鈥�
GASOLINE
2020 was a wild year for oil, with U.S. crude prices collapsing into negative territory for the first time in history in April, as coronavirus restrictions and their economic impact sent demand for oil plunging.
With many people working from home and making fewer road trips this past year, gasoline prices also sank to levels not seen in more than a decade. While prices are off 2020 lows, a major increase is unlikely as rising COVID-19 cases remain a concern and many companies continue to keep workers home.
鈥淓nergy prices are higher than they were say, over the summer, but they鈥檙e still below what they were a year ago,鈥� said Janzen.
MORTGAGE AND INTEREST RATE
Mortgage interest costs already declined in 2020 for homeowners with a variable mortgage rate. That is expected to continue, especially for those renewing their mortgages at a lower rate, said Janzen.
With the Bank of Canada鈥檚 target overnight interest rate expected to , the cost of borrowing will remain extremely low in 2021. Economists generally expect variable mortgage rates, which are linked to the central bank鈥檚 target rate, to continue to stay around current levels in 2021. Fixed mortgage rates are expected to rise, but remain below 2.5 per cent in 2021.
鈥淎s the vaccine rolls out across the country and there is optimism that the worst of the pandemic is behind us, Canadians can expect bond yields to rise, which will cause mortgage providers to modestly increase fixed rates,鈥� according to James Laird, co-founder of financial products comparison website, Ratehub.ca.
HOME PRICES
The direction for housing prices will depend on who you ask -- and where you live, but for the most part, expectations are that prices will likely rise in 2021, particularly given the low interest rate environment and amid a high demand/low supply housing market.
The Canadian Real Estate Association (CREA) is predicting the 2021 national average home price to to $620,400. Real estate firms like RE/MAX are predicting a rise, while Royal LePage is looking at a .
Expectations for prices to continue to climb come after the average national home price rose in the second half of 2020, following a tough second quarter. Prices are on track to increase more than 13 per cent on an annual basis, with housing sales expected to hit a record as well, according to CREA.
鈥淭hey have definitely gone up and we鈥檙e expecting more of that 鈥� interest rates are very low. At the same time, a lot of things that higher income households would normally spend on are not available for purchase,鈥� Janzen said. 鈥淎 lot of extra cash has gone to boost the housing market.鈥�
With Canadians continuing to work from home indefinitely in some cases, some experts also predict further demand for more space, especially further away from city centres.
Still, earlier predictions in the fall by , for example, believe housing prices could take a hit in 2021, hurt by a weak labour market, oversupply in some parts of the country and out-of-reach pricing in major cities like Vancouver and Toronto.
A also expressed some doubt on stronger housing prices, noting that, 鈥渉igher unemployment and economic uncertainty, combined with lower immigration, are expected to slow housing activity across Canada.鈥�
Meanwhile, condo prices in urban centres are expected to fall in the first half of the new year before steadying in the back half, .
鈥淯niversity students learning remotely, the lack of immigration, and the crack down on Airbnb will continue to weigh on condo prices. When students return to campus and borders reopen for new Canadians, demand will return to the condo market,鈥� according to Ratehub.ca鈥檚 Laird.
TRAVEL
While prices for international flights spiked in some cases earlier this year, the overall average cost of airfare has fallen as much as 35 or more per cent in recent months, . The firm, which provides flight ticket settlement services between airlines and travel agencies, says tickets will still fluctuate along the normal seasonal price curve even as it remains near historic lows.
It鈥檚 too soon to tell when the cost of travel will rebound back to pre-COVID levels, but there could be a surge in demand for travel and hospitality services towards the back end of 2021, Janzen said. It will all hinge on how the vaccine rollout progresses and to what extent a post-COVID normal life can resume.
鈥淭here's a lot of pent up demand for purchasing those kinds of services and a lot of it at this point is savings built up from people that just normally wouldn鈥檛 take a trip or weren鈥檛 able to over the last few years.鈥� he added.
