The income gap reached a record high in the first quarter of 2025; the highest income households gained from investments, while the lowest income households’ wages declined. Lower borrowing costs and easing inflationary pressures facilitated household saving and debt management, while declining real estate values weighed on the average wealth of younger age groups and the least wealthy, reported Statistics Canada.
“The income gap is defined as the difference in the share of disposable income between households in the top 40% of the income distribution and the bottom 40%. This gap reached a record high of 49.0 percentage points in the first quarter of 2025. The income gap increased each year following the onset of the COVID-19 pandemic. A low of 43.8 percentage points was recorded in the first quarter of 2021,” said the federal agency.
“Households’ ability to maintain their economic well-being varies with macroeconomic conditions. In contrast with prevailing high interest rates in 2023, the Bank of Canada reduced its policy rate from 5.0% in April 2024 to 2.75% in March 2025 in response to easing inflationary pressures. Along with declining interest rates, household interest payments decreased for the first time since 2022, declining by 4.8% in the first quarter of 2025 relative to the first quarter of 2024.
“While declining interest rates can lead to easing borrowing costs for households, they can also lead to lower yields on interest-bearing investments, such as savings and deposit accounts. Lower income households are more likely to benefit from declining interest rates, as they tend to be more indebted relative to higher income households. However, they also tend to have less diversified investment portfolios that focus on interest-bearing instruments rather than other forms of investments, such as equities.”
Lower income households also tend to be more susceptible to job loss during economic downturns. Amidst economic uncertainty, labour market conditions have recently weakened. Data from the Labour Force Survey show that the employment rate—the proportion of the population aged 15 years and older who are employed—has been on a declining trend since early 2023, explained Statistics Canada.
“The lowest income households (bottom 20% of the income distribution) had the weakest growth in disposable income in the first quarter of 2025 relative to one year earlier (+3.2%). This is because they were the only group that had declining average wages (-$17; -0.7%), due mainly to reduced hours of work. Labour market conditions were notably weak for people working in mining and manufacturing,” it said.
“The lowest income households also had the largest reduction in net investment income, as a decline in investment earnings (-$399; -35.3%) more than offset lower interest payments (-$107; -7.1%).”
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