As inflation sharply accelerated in 2022, household purchasing power declined. Meanwhile, the Bank of Canada rapidly increased its key interest rate from its pandemic-era lows, bringing it up to 5% by mid-2023 before hitting pause.
The Consumer Price Index reached an all-time high of 8.1% in June 2022, and has slowed ever since under the weight of rate hikes by the Bank of Canada.
While higher interest rates weighed on many households as the cost of their mortgage payments rose, it also helped boost investment income, the report said.
The investment income of the wealthiest 20% of households grew faster than their interest payments, leading to a net increase in income over inflation and boosting their purchasing power in 2023.
For other households, interest payment increases on average were higher than their investment income last year.
As a result, households in the third and fourth quintiles saw their purchasing power stagnate, while the lowest-income households saw their power deteriorate.
“In summary, the purchasing power of most households remained higher in the first quarter of 2024 than in the last quarter of 2019,” the report said.
“However, since 2022, rising inflation and tighter monetary policy have eroded purchasing power, particularly among lower-income households.”
