Canadian household budgets are not only affected by inflation, they are also bringing in less. Data from Statistics Canada (Stat Can) shows that household disposable income contracted in the fourth quarter of 2021. This is the second consecutive quarter of declines in disposable income, and it is a significant drop from relation to the top. Not great, but expected as the economy improves and government support is reduced.

Canadian households saw their disposable income fall for 2 quarters

Canada’s economy is growing, but households are left with less money. The seasonally adjusted annual rate (SAR) of disposable income was $1.425 billion in the fourth quarter of 2021. It was down 1.32% from the previous quarter and was the second consecutive quarterly decline. Annual growth was still positive at 2.66% higher, but this is a figure lower than the high inflation observed.

Canadian disposable income

The seasonally adjusted annual disposable income rate of Canadian households.

Source: Statistics Canada; Live better.

Household disposable income is now 3.6% below peak

Household income may be up on an annual basis in nominal terms, but it is down from the recent peak. Disposable income peaked in the second quarter of 2020, and the last quarter was 3.58% below the peak. Keep in mind that this is not just an adjustment for high inflation, but also an adjustment for population. For example, the annual growth of the labor force was 1.55%. This means that Canada used many more economic units to generate a small growth.

Reduction in government transfers behind lower disposable income

The decline is mainly due to the drop in government transfers, that is to say support in the event of a pandemic. If you recall, government transfers doubled lost income in the second quarter of 2020. Support programs like CERB replaced every dollar of lost income with two dollars. As the economy recovered, the criteria for these programs tightened. Along with this tightening, the need for government support has diminished.

Stat Can confirms this belief with its notes on recent data. “Government transfers to households as a share of disposable income fell to 19.1% in the fourth quarter, marking a return to pre-pandemic shares of less than 20%,” the agency wrote.

A decline in disposable income is not large, but it was not unexpected. Generous income supports artificially inflated disposable incomes, which were to fall with the disappearance of the programs. Since then, the economy has returned to its production level, but many industries are still at reduced capacity. As more industries standardize, they will bring the potential for higher wage growth. At the same time, they will bring more inflation which will have to balance the unproductive growth.

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