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Canada’s inflation rate may have eased slightly in July, but at 7.6 per cent no Canadian family can avoid the pinch of higher prices – and middle-income households are likely getting the worst of it, according to an analysis by TD Economics.

The inflation rate for middle-income households is actually 8.1 per cent, the highest for any income bracket, after adjusting for how each income group typically spends money, according to the bank’s economists.

For instance, Statistics Canada’s survey of household spending conducted prior to the pandemic showed that middle-income families spend roughly a fifth of their budgets on transportation, more than any other income group.

And while low-income households spend the largest share of their incomes on food, middle-income households aren’t far behind.

The good news for middle-income households is that energy prices have dropped in recent months and the supply chain problems that drove up vehicle prices are also easing, which means the disproportionate impact on those families is likely to vanish.

The TD economists note that their analysis likely understates the inflation pain felt by low-income households, as it does not account for how households might shift their spending habits in the face of higher prices. Low-income families are less able to avoid inflation, because a larger share of their spending goes to necessities such as housing, medicine, utilities and groceries, and more than 70 per cent of price growth during the past year has been in essential items.

With rent inflation now picking up speed, low-income families – who are more likely to be renters – may feel more of the inflation burden shift to them.

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

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