Economist flags balanced spending gains across income brackets with implications for BoC policy and growth outlook
The absence of a ‘K’-shaped pattern in Canadian consumer behaviour may reflect deeper risks to the economic expansion and policy outlook, according to a leading economist.
In a note outlining key data and events for this week, CIBC senior economist Andrew Grantham highlights an ongoing debate over the distribution of spending in Canada compared with the United States.
“There’s been a lot of discussion recently of a ‘K’-shaped US economy, in particular when it comes to consumer spending,” Grantham writes, pointing to a US environment where higher-income households are driving consumption while lower- and middle-income groups fall behind.
Canadian data released this week, arriving between the Bank of Canada’s rate decision and the next GDP report, tell a different story. Grantham notes that “lower, middle and higher income groups all seeing similar percentage increases over the past few years,” suggesting spending growth has been broadly even across income brackets.
At face value, that may appear encouraging for demand resilience. But Grantham cautions that “it may not actually be OK that we haven’t seen a ‘K’ shape in Canadian consumer spending.” He argues that uniform spending gains could be masking underlying fragility rather than reflecting genuine strength.
One concern is that lower-income households have continued to spend despite a rising unemployment rate. Grantham says spending growth in this group “has been stronger than trends in incomes and wealth among lower income households,” indicating that savings are being drawn down to sustain consumption — a situation he describes as “not able to last forever.”
At the other end of the spectrum, higher-income Canadians have been more restrained. Grantham describes their spending behaviour as “comparatively modest,” despite stronger gains in income and wealth. He points to higher interest-rate sensitivity and delayed wealth effects from equity markets as potential explanations.
The implications extend to the policy outlook. Grantham’s report concludes that “it’s hard to envision that the economy will grow enough in 2026 to necessitate interest rate hikes before the end of the year,” a view that reinforces expectations for a cautious Bank of Canada as it prepares to decide on interest rates for the first time in 2026 this week.
