As inflation rises sharply in 2022, domestic purchasing power declines. Meanwhile, the Bank of Canada quickly increased its key interest rate from its pandemic-era decline, bringing it up to 5% by mid-2023 before hitting a pause.
The Consumer Price Index hit an all-time high of 8.1% in June 2022, and has fallen since under the weight of inflation by the Bank of Canada.
While higher interest rates are burdening many households as mortgage costs rise, they have also helped boost investment income, the report said.
The investment income of the richest 20% of households grew faster than their interest payments, leading to a net increase in income above inflation and an increase in their purchasing power by 2023.
For some households, the increase in interest payments was on average higher than the income invested in the previous year.
As a result, households in the third and fourth quintile saw their purchasing power stagnate, while low-income families saw their purchasing power deteriorate.
“In summary, the purchasing power of most households remains higher in the first quarter of 2024 than in the last quarter of 2019,” the report said.
“However, starting in 2022, rising inflation and tight monetary policy eroded purchasing power, particularly among low-income households.”
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