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Early in the pandemic, many Canadians got their financial house in order, paying off credit cards and other high-interest debt. It certainly helped that spending options were limited and the federal government spent billions on financial assistance for those whose paycheques were affected.

Now, the tide is shifting. Households held about $80-billion in credit card liabilities with chartered banks in February, an increase of 8.9 per cent from a year earlier, according to Statistics Canada. While that sum is nowhere close to a peak – credit card debt totalled $89.6-billion in December, 2019 – it’s been rising steadily the past year.

The build-up is not inherently problematic. People are finding more opportunities to pull out their plastic as the economy reopens, while the country’s unemployment rate is at a record low and wages are accelerating. Households have saved an additional $300-billion over the course of the pandemic, compared with typical rates of saving. And delinquency rates – that is, the proportion of people falling behind on required monthly payments – remain low, “with no significant signs for concern,” credit reporting agency TransUnion said in a March report.

The broader context, however, is rife with uncertainty. As Canadians paid off credit cards, they took on billions in new mortgages, driving the household debt burden to record highs. The Bank of Canada is now raising interest rates in aggressive fashion to tame inflation, which will lead to higher debt-servicing costs. Steep inflation is also sopping up part of the savings cache.

“All in all, significant household indebtedness remains a vulnerability, which adds an extra layer of risk for the Bank of Canada’s tightening plans,” Ksenia Bushmeneva, a Toronto-Dominion Bank economist, wrote this month in a report. “It will need to remain vigilant to make sure this hiking cycle does not end in tears.”

Decoder is a weekly feature that unpacks an important economic chart.

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