Gaps in household income and wealth widened in 2023 relative to a year earlier as higher interest rates had a negative impact on the income and net worth of the lowest income and least wealthy households.
Income gap widens to highest rate since 2015 as debt charges weigh on lower income households
Income inequality increased in 2023 as the gap in the share of disposable income between households in the two highest income quintiles and two lowest income quintiles was the largest since 2015.
While higher interest rates can lead to increased borrowing costs for households, they can also lead to higher yields on saving and investment accounts. Lower income households are more likely to have a limited capacity to take advantage of these higher returns, as on average they have fewer resources available for saving and investment.
Higher interest rates weighed on average disposable income for lower income households in 2023. Along with a doubling of the Bank of Canada's policy interest rate from 2.5% in July 2022 to 5.0% as of July 2023, average disposable income for lower income households was relatively unchanged, as increases in interest payments on mortgages and credit cards offset gains in employment and investment income.
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