Canada: Households Continued to be Stretched in Q2 2024 September 12, 2024

Today's household balance sheet data continue to show mixed signals. Still-high interest rates are putting greater stress on Canadians, especially as more households grapple with costly mortgage payments. According to the Bank of Canada's latest Financial Stability Report, roughly half of mortgage holders had yet to feel the full impact of high interest rates at that time. Once these households experience a mortgage renewal, they will face significantly greater financial strain because of higher monthly payments.

However, Canadians are demonstrating a degree of resilience. Income growth and reduced discretionary spending have contributed to a relatively stable household consumption. Moreover, we think that Canadians are well aware of this looming drag on their household finances. This helps explain the elevated savings rate in Canada, particularly when compared to the US. Nonetheless, non-mortgage holding Canadians are facing heightened financial stress, with a growing reliance on credit card debt to fuel their purchases.

High interest rates are working, as the advance in household consumption is slowing down, which is the intent of restrictive monetary policy. Inflation is heading towards the Bank's 2% target and the economy is in excess supply. Recent job numbersExternal link. point to growing unemployment despite job gains. Still, the Bank faces an ambitious task of achieving a soft landing given present vulnerabilities and future headwinds. This has gradually increased the odds of the Bank cutting rates by 50 basis points in October, potentially providing even greater relief for Canadians.