TD inflation study shows middle-income households feeling “hottest burn of higher prices”

A study by TD says Canadian households are “feeling the heat” of rising prices or inflation.

While many are hurting, some are getting it worst.

Who are they?

The title of the piece “Inflation’s Toll on Canadian Families: The Fire is Hottest in the Middle” by Toronto Dominion bank economists James Marple and Rannella Billy-Ochieng provides an unmistakable clue.

Marple and Billy-Ochieng wrote that because of “broad based price pressures, the vast majority of Canadians are facing elevated inflation”.

“However, digging into the consumption baskets of households across the income spectrum, middle-income families have it the worst,” the bank economists noted.

The paper was published online Thursday (August 18), which was a couple of days after Statistics Canada released the latest inflation figures.

Statistics Canada reported that inflation rose 7.6 percent on an annual basis in July 2022.

The rate was slightly down from the 8.1 percent level in June this year.

However, on a month-over-month comparison, the July inflation of 7.6 percent represented a 0.1 percent increase from June, and was the “seventh consecutive monthly increase”.

In the TD paper, Marple and Billy-Ochieng noted that transportation and food prices are the “leading actors behind elevated inflation”.

“Together they account for roughly half of the growth in prices over the last year, punching well above their weight in the consumer basket,” the economists noted.

What does this mean for middle-income Canadians?

“A higher share of spending on food and transportation relative to other income groups explains much of the faster inflation rate faced by middle-income households,” Maple and Billy-Ochieng wrote.

Overall, an inflation rate of 7.6 percent in July “leaves Canadian households still feeling the burn of higher prices”.

In the last three months ending in July 2022, inflation averaged 7.8 percent year-over-year.

However, the corresponding rate for middle-income households was higher at 8.1 percent.

“Middle-income households’ spending on transportation and food puts them closest to the line of fire,” Marple and Billy-Ochieng stated.

The TD analysis features a graph of five income quantiles to illustrate how middle-income households are feeling most of the heat from inflation.

The quantiles didn’t specific range of incomes.

Figures from an income survey released by Statistics Canada on March 23, 2022 may provide some context.

The survey showed that the median after-tax income of Canadian families and unattached individuals was $66,800 in 2020.

Statistics Canada noted that this median income represented an increase of $4,400 or 7.1 percent from the previous year of 2019.

Going to details about the TD’s analysis of inflation, middle-income families typically spend almost a fifth or 19.4 percent of their budget on transportation.

The said proportion represents the “highest among income groups”.

In July 2022, Marple and Billy-Ochieng noted that higher costs for fuel and cars accounted for more than 30 percent of the increase in year-over-year inflation.

“These price pressures have made private transportation comparatively more expensive than public transit … concentrating the pain on middle-income households,” the economists wrote.

As for food, prices grew 9.2 percent annually in July 2022.

Marple and Billy-Ochieng noted that families in the bottom two income quintiles “typically spend more on food than other groups”.

However, middle-income households spend “almost as much as lower income households” on food, thereby “leaving them vulnerable” as well.

Marple and Billy-Ochieng wrote, “Elevated inflation is hurting everyone, but, given their relatively higher share of spending on food and transportation, middle-income households are likely facing the highest inflation rates.”