Canadians will face tougher times ahead

The rate of increase in the cost of living hit the highest level in more than five years last month, increasing to 3.5 per cent on an annual basis from 3.4 per cent in July, Statistics Canada said Tuesday.

As has been the case for months, gasoline and other energy costs were the key drivers of the consumer price index.

The Canadian economy is struggling and homeowners will face tougher times ahead.

Canadians were given a reality check about how the global financial crisis would hit their wallets as bank executives predicted a slowdown in consumer lending.

Chief executive officer of Canadian Imperial Bank of Commerce Mr. McCaughey expects that there is going to be a real challenge in terms of the economy and the industry maintaining loan growth.

He said, he would be surprised if loan growth does not slow down across the industry and he would also expect that you would see some slowing in terms of mortgage origination.

He suggested that banks could also clamp down on unsecured lending.

Analysts have long speculated that banks are planning more steps to curb unsecured lending – such as consumer lines of credit not backed by collateral – as a way to reduce risk.

Craig Fehr, a financial services analyst with brokerage Edward Jones, said sputtering loan growth is just the beginning.

Consumers should also expect higher borrowing costs and fees coupled with tougher lending standards, particularly for those with spotty credit.

He thinks the cost of getting a mortgage could certainly rise because banks need to be compensated better for higher risk on the interest rate or on the fees in some cases.

Banks are grappling with higher funding costs in the wake of last year's sub-prime mortgage market meltdown in the United States.

With the ensuing global credit crunch now in its second year, banks remain wary of lending to each other.

That, in turn, has made it more difficult and expensive for businesses and individuals to borrow funds.

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