Canadian inflation is affecting middle-income families the most

The latest analysis by TD Economics shows that although Canada’s inflation rate has eased last month, with 7.6%, no Canadian family can avoid the hit from growing prices, and middle-income households are probably facing the hardest punches.

To be more precise, the inflation rate for middle-income households is 8.1% which is the highest level for any income category. The banks’ economists released this number after adjusting it based on spending habits of each income group.

For example, Statistics Canada’s poll of household spending made before the pandemic showed that middle-income families tend to spend about a fifth of their budgets on transportation, which is more than in case of any other group.

Although low-income households spend the biggest chunk of their incomes on food, middle-income households are following closely.

However, there’s good news for middle-income households: the energy prices have been declining during the previous months and the supply chain problems that pushed vehicle prices up are also easing, meaning the disproportionate influence on those families will probably disappear.

According to the TD economists, their analysis may understate the inflation hit felt by low-income households, as it doesn’t include data on how households may have changed their spending habits because of higher prices. The truth is, low-income families are less able to avoid inflation, as they have to spend a larger share on housing, medicine, utilities and groceries, and more than 70% of prices growth over the previous year has been reported in these sectors.

As rent inflation now is growing, low-income families, who are more likely to rent homes, could feel more of the inflation pain.