Higher Interest Rates Are Having an Uneven Effect on Canadian Households

Many Canadians are under serious pressure as they face high inflation, high interest rates and high debt levels. The economic accounts indicate that, on average, household disposable income and consumption expenditures are up, which has allowed the household saving rate to remain higher than it was before the pandemic. But a breakdown of the data reveals growing disparities between households. Annual savings for higher-income households peaked in 2023, but wage growth hasn’t kept up with the rising cost of household consumption expenditures for the three lower income quintiles.

In the coming quarters, the financial pinch could get worse for many households as they renew their mortgages at higher rates—even if the Bank of Canada continues to loosen its monetary policy. The higher cost of servicing debt can make households more vulnerable to economic and financial stress. To get a better understanding of these vulnerabilities, it’s useful to look at how debt is distributed among households in various income quintiles.