(Bloomberg) — Inflation, higher interest rates and falling real estate values are worsening wealth inequality in Canada, with younger households bearing the brunt of financial hardship.
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The top 20% of households controlled 67.8% of the country’s net worth in the first quarter, while the bottom groups accounted for 2.7%, Statistics Canada reported Tuesday in Ottawa.
This difference of 65.1 percentage points was 1.1 points higher than the same period a year earlier. This is the fastest increase on record since 2010, although the wealth gap is still slightly narrower than in 2020.
The widening wealth gap is a challenge for Prime Minister Justin Trudeau, whose government has pledged to reduce inequality only to see it widen by rapidly rising house prices during the pandemic. It also highlights a consequence of the Bank of Canada’s aggressive interest rate hikes to fight inflation, which is compressing the country’s indebted households.
The less wealthy have been hit harder by recent economic pressures, seeing their net worth drop by 13.8%, more than triple the rate of decline of the wealthiest.
The gap in the share of disposable income between households in the top and bottom 40% reached 44.7 percentage points, up 0.2 percentage points from a year ago.
The decline in net worth for all households was almost entirely attributable to real estate, with the average value falling 8.6% from a year ago. The less affluent group saw their mortgage debt grow at a much faster rate than the overall value of their home equity.
Debt-to-income ratios for younger age groups and those of core working age were also at record highs and well above pre-pandemic rates. The ratio of youngest households reached 207.5%, up 13.4 percentage points from a year ago. For those aged 35 to 44, the ratio jumped 16.6 percentage points to 275.8%.
Younger households have recently increased their share of Canada’s total population, accounting for 47.3% of all growth since the third quarter of 2021, mainly due to high levels of immigration.
“Persistently high interest rates and inflation are likely to continue to strain the ability of households to make ends meet without taking on more debt, especially vulnerable groups, such as those on the lowest incomes. , the less wealthy and those in the younger age groups,” the statistics agency said.
–With the help of Erik Hertzberg.
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