Canadians with low income will face the strongest influence of growing rates and inflation

The recent report by RBC Economics shows that growing inflation and borrowing costs will influence all Canadian households, but will have the strongest impact on low income Canadians.

Economists at RBC say an increase of the central bank’s key lending rate to 2% will raise average Canadian household debt payments by about $2,000, or 15% in 2023.

However, according to them, the debt service ratio of low income Canadians will go up twice faster than in case of high income households next year.

RBC estimates show that the lowest income Canadians will feel more influence of the inflation growth, as they have to spend a much bigger share of their earnings on consumer products.

In addition to it, they also have a smaller cash cushion which could help in case of prices and borrowing costs increase.

As you know, the Bank of Canada raised its overnight rate by 0.50% this month and warned about more increases coming this year, as it tries to reduce the annual inflation rate which reached a 30-year record level last month (6.7%).