Canadian households to face continued financial pressure in year ahead: Fitch

Canadian household finances are facing an array of headwinds including a weak job market, inflationary pressures and ongoing trade uncertainty, which will keep consumers under continued financial pressure in the year ahead, says Fitch Ratings.

In a report published Thursday, the rating agency said households are already showing signs of strain. In the fourth quarter of 2025, consumer spending ticked higher, as outlays on services offset weaker goods purchases — but, discretionary spending trailed the consumption of essentials, it noted.

And, households financed their spending by drawing on savings amid slowing wage growth, the report said.

Fitch reported that the household saving rate fell to 4.4% of disposable income in the quarter, down from 5.5.% compared with the same quarter a year earlier.

At the same time, consumer insolvency filings have risen, and the metrics underlying credit card asset-backed securities deteriorated in the first quarter, it said — with the three-month average net charge-off rate rising to 3.45% in the quarter, up from 3.32%.

Looking ahead, household finances will continue to be challenged, the rating agency cautioned.

“We expect rising energy prices, a soft labour market, and ongoing trade uncertainty to erode household finances and consumer confidence,” Fitch said.

Already, the rise in fuel prices since the conflict in the Middle East erupted “has pushed up headline inflation,” it noted.

The labour market remains weak too.

“Canada’s auto-producing regions are still feeling the effects of the changes to U.S. trade and tariff policy,” the report said. “Hiring demand is soft amid uncertainty surrounding the outcome of this summer’s CUSMA/USMCA review.”

Currently, Fitch expects the Bank of Canada to keep its policy rate unchanged through 2027. However, it noted that the central bank “warned last week that prolonged higher price pressures stemming from the Iran conflict might necessitate renewed hikes.”

Assuming that policy rates do remain on hold though, “cost-of-living pressures and high borrowing costs [will still] continue to strain households,” it said, adding that the surge in mortgage renewals will add further pressure, with about 52% of total mortgages due to renew by the end of 2027.