By Paul Vieira


OTTAWA--The overall share of after-tax income held by Canada's middle-class households declined over a one-year period, as investment gains failed to keep pace with higher debt payments, the country's data-gathering agency said Wednesday.

The findings help explain the soft levels of domestic demand during the past two years, with interest rates at elevated levels to tame inflation. Aggressive interest rate cuts from the Bank of Canada, starting last June, appear to have rekindled economic activity in late 2024, data suggest.

Statistics Canada said that middle-class households -- or those in the middle 60% of income distribution -- experienced modest after-tax income increases during the recent period of high inflation, relative to the country's upper- and lower-income households. While inflation slowed to below 2% in late 2024, overall prices for goods and services rose 17.1% over a nearly three-year period, ended October of last year.

In the 12-month period ended June 30 of last year the share of after-tax income held by middle-class households fell by one percentage point, as increases in debt-financing charges surpassed earnings growth. In contrast after-tax income rose 7.6% for households in the top 20% of income distribution, and 9.4% for the lowest-income quartile.

"Elevated shelter and debt charges have weighed on savings for middle-income households," Statistics Canada said. "Stresses from elevated prices and the deterioration of housing and rental affordability have impacted self-reported life satisfaction."

Statistics Canada said the wealthiest 20% of households accounted for more than two-thirds of the country's total net worth in the second quarter of 2024. Upper-income households have an average net worth of 3.4 million Canadian dollars, or the equivalent of $2.37 million.

Political analysts say discontent with the state of household finances is a key reason why Canada's Conservative Party, led by Pierre Poilievre, hold a sizable lead of between 20 and 25 percentage points over the governing Liberals in nearly all public-opinion polls. Prime Minister Justin Trudeau said this month he would step down as Canadian leader, and Liberal Party members are set to choose a new leader on March 9. By law, an election must be held in Canada no later than October.


Write to Paul Vieira at paul.vieira@wsj.com


(END) Dow Jones Newswires

01-22-25 0944ET