The budget pressures faced by different households since 2020

Although inflation has come down from pandemic highs, many households are still feeling the effects of higher prices. Between 2020 and 2025, younger and lower‑income households generally saw spending outpace income gains while older and higher-income households fared better. Together, these differing experiences meant income gains for the average household kept up with higher spending.

A large number of Canadians continue to view their budgets as stretched even though inflation has slowed since the pandemic.

These concerns are valid and reflect an important reality. Although a lower rate of inflation means consumer prices are rising more slowly than before, it does not erase the effects of higher prices that households have had to absorb since the pandemic began (Chart 1).

But higher prices and the increased spending that follows are only one side of the equation. The other side is household disposable income, which, like price levels, is above its pre-pandemic trend. The key question is whether disposable income has kept pace with greater spending.

The short answer is yes. Relative to pre-pandemic trends, disposable income growth generally exceeded growth in spending over 2020–25, producing an annual surplus about $900 on average over this period. Spending growth did outpace income gains between 2022 and 2024 as elevated inflation pushed spending higher. But by 2025, the gap had closed, with disposable income gains once again exceeding additional spending.

However, these overall results mask important differences across households. While many households saw income growth offset higher spending, others—particularly younger and lower-income households—did not. These differences may help explain why many Canadians still feel affordability pressures even after inflation has slowed.

Measuring the gap between household income and spending

To compare how different households have fared since the pandemic, I examine how household disposable income and spending have changed relative to their trends before the pandemic. These trends provide a simple benchmark for what households might have expected had the pandemic—and other unexpected developments—not occurred. Also, focusing on household spending provides a more comprehensive measure of budget pressures because it reflects both the prices households faced and what they purchased.

The spending data come from Statistics Canada’s Distributions of Household Economic Accounts and are available for different groups of households across 13 spending categories, including food, shelter, transportation and recreation.

For each household group, I first calculate the deviation of disposable income from its pre-pandemic trend. My second calculation is the amount of additional spending, which I determine by multiplying real household spending in each category by the deviation in the corresponding consumer price index from its pre-pandemic trend and totalling the results across all 13 categories.

Comparing the two measures yields what I call the income-spending gap. It shows whether the additional income earned relative to pre-pandemic trend exceeds the amount of additional spending. A negative value indicates a budgetary shortfall.

Of course, this gap will differ across households because each household allocates its spending differently across goods and services. The gap will also vary across households because, relative to pre-pandemic trends, prices and spending have evolved differently across categories, while income growth has varied across households.

Importantly, this gap is not a measure of overall financial well-being. For example, it does not reflect changes in wealth—both housing and financial—that may influence how households assess their financial situation. Nor does it reveal whether households bought less as prices rose, even if their disposable income kept pace with spending. Rather, it is a simple accounting exercise to quantify the budget pressures that different households face.

Where the average household stood by 2025

Over 2020–25, the average household spent about $6,500 more per year relative to pre-pandemic trends (Chart 2). Gains in disposable income over that period were slightly larger, at about $7,400 extra per year. As noted earlier, this amounts to about a $900 difference between disposable income and spending.

Assessing the data by year, we can see that income gains more than offset higher spending in 2020 and 2021. But things changed in 2022, when inflation hit a four-decade high and spending growth moved ahead of gains in disposable income. Then from 2023 onward, the gap between the two measures gradually narrowed as inflation returned close to the Bank of Canada's 2% inflation target and growth in disposable income per household picked up. By 2025, disposable income had moved ahead of spending by just under $300.

The results should be interpreted with care.

• Spending data for 2024 and 2025 are estimated and may be revised.
• The results depend on assumptions about how the income and price trends evolved over 2020–25. For example, if the income trend were adjusted to reflect Canada’s weak labour productivity growth over this period rather than being based on historical data, the average household's income gains would exceed additional spending by about $2,500 in 2025 alone.

Many households still faced a financial shortfall in 2025

The results also show substantial differences across households in 2025. In dollar terms, younger households—meaning those under the age of 35—and households in the bottom three disposable-income quintiles saw additional spending exceed additional income, with the second-lowest quintile facing the largest shortfall (Table 1). Similarly, households that own their home faced a shortfall, while those that rent came close to breaking even.

Several groups came out ahead, with gains in disposable income more than offsetting extra spending. These included households aged 35 and older and those in the top two disposable-income quintiles.

Differences across household groups become more apparent when income-spending gaps are expressed as a share of household income in 2025. The gaps ranged from a shortfall of about 7% of income for households in the second-lowest disposable-income quintile to a surplus of 13% for those in the top quintile. Gaps are smaller for other groups shown in Table 1.

Note: The income-spending gap is calculated by subtracting additional spending from additional income, both of which are measured relative to their pre-pandemic trends. Negative (positive) values of the gap indicate households are worse (better) off on average because additional income does not offset (more than offsets) additional spending.
Sources: Statistics Canada and Bank of Canada calculations

As mentioned earlier, households allocate their budgets differently across spending categories. For instance, younger and lower-income households spend relatively more on food and shelter. Prices in these categories remained well above their pre-pandemic trends in 2025, which helps explain the negative gaps for these households.

How this analysis helps understand affordability concerns

The return to low inflation does not reverse the price increases that households have already absorbed. Further, affordability depends not only on prices but also on incomes. Higher productivity growth in the economy would help in this regard by contributing to stronger gains in incomes and living standards without adding to inflationary pressures.

This analysis highlights the value of looking beyond averages when assessing economic conditions. Households experience inflation differently depending on what and how much they purchase, their income growth and their net wealth. Understanding these differences can help policy-makers interpret and communicate economic conditions more effectively.

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