With inflation cooling and wages growing, why are Canadians still feeling strained?
The federal finance minister has been taking every opportunity to remind frustrated Canadians that after a bumpy pandemic recovery, the nation’s economy is actually doing a lot better.
Inflation is now at 1.6 per cent, below the Bank of Canada’s two per cent target. Interest rates are falling rapidly and more cuts are on the way. The economy, while weak, has avoided a much-feared recession.
And maybe most importantly, wage growth has outpaced price growth for 20 consecutive months.
But a recent RBC analysis suggests that Canada’s economic recovery has been uneven, with “two contradictory trends.” Beneath the surface of the more encouraging economic statistics are some less flattering ones.
The top 40 per cent of income earners have taken home 70 per cent of wage growth over the last three years.
Household spending on a per-person basis is down.
And while low- and middle-income Canadians have devoted more of their pay to essentials and like food and shelter, the highest-income earners continue to amass significant savings.
“It’s very much a story of households in different income quintiles or different earnings brackets, if you will, are feeling the current economic environment very differently,” said RBC economist Carrie Freestone, who authored the report.
The Bank of Canada’s interest rate hikes have contributed to that divergence. Steeper rates have increased the debt load of low- and middle-income households with mortgages or other loans. Meanwhile, people with higher incomes have been earning higher returns on their savings.
“The Bank of Canada is in a really tricky position,” Freestone said. “They obviously want to target the prosperity of all Canadians, but it’s very difficult to do that with monetary policy,
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