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The Bottom Line:

The economic impact of U.S. trade policy has had a larger impact on trade-sensitive sectors and regions (concentrated in the manufacturing sector to-date) but also across the income and wealth  distribution of households.

In Canada, the household wealth gap widened during Q2 as the housing market’s weaker performance limited gains for the least wealthy households. Meanwhile, wealthier households saw larger benefits from the strong rebound in the equity markets following a weak Q1. 

Income inequality remained at record high levels in Q2 2025 – and would have widened further if not for a rise in government transfers to the lower end of the income distribution.  

These widening disparities are evident in spending and saving patterns. Higher-income households continued to see income growth, enabling them to save, whereas lower-income households increasingly relied on savings or borrowed to meet everyday expenses.

Cost-of-living pressures remain more pronounced for lower-income groups, particularly as inflation in necessities like rent and groceries remains elevated. These expenses consume a larger portion of disposable income for lower-income households and are harder to cut back on, leaving many families with limited financial flexibility despite an overall decline in inflation trends.

Labour market trends have also contributed to these dynamics. The national unemployment rate in Canada rose significantly, with younger workers being affected the most.

The Details:

• Growth of average disposable income remained positive overall in Q2 2025, rising 3.9 percent year-over-year, down from 6.2 percent in the prior quarter. For the bottom income quintile, average household disposable income grew by 5.6 percent, outpacing other income groups. This was largely driven by government transfers rather than employment earnings.

• The income gap between the top 40 percent and bottom 40 percent widened back to a record 48.4 percentage points matching its year ago level. 

• Household savings rate remained positive (though slower) on aggregate, but this conceals worrying trends. Net savings declined across the income distribution – lower-income households continued to register net borrowing per household in Q2 2025, with spending outpacing disposable incomes. High-income groups saw smaller savings but still significantly positive. 

• The wealth gap between the top 20 percent and bottom 40 percent widened to 61.5 percentage points, reflecting weaker growth in the net worth of the least wealthy due to a soft housing market, while higher wealth households benefited more from a rebound in financial markets. 

• Younger households aged 35 or under experienced slower wealth growth, with an increase of 2.1% compared to 0.6% in Q1, as they continued reducing mortgage debt. In contrast, older households posted stronger gains.

• Regional wealth inequality persists, with Ontario and British Columbia continuing to lead in higher net worth-to-disposable-income ratios compared to other provinces. This is largely due to expensive real estate markets, which boost asset values while also saddling households with larger debts. Debt-to-disposable-income ratios are by far the highest in Ontario (212 percent) and British Columbia (195 percent), well above the national average of 182 percent. Alberta ranks third highest at 167 percent.

About the Author

Abbey Xu is an economist at RBC. She is a member of the macroeconomic analysis group, focusing on macroeconomic forecasting models and providing timely analysis and updates on economic trends.