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For Canadian households, the one-two punch of high inflation and interest rates has left a deep mark, forcing consumers to cut back on spending and shaking housing markets.

On the surface, the latest insolvency numbers for August point to even more strain, with the combination of bankruptcy filings and consumer proposals jumping 9 per cent year-over-year. Meanwhile, during the 12-month period, more than 134,000 people fell into financial duress, a level just 11 per cent below the peak reached during the Great Recession.

However, as with every measure of Canada’s economy these days, the population boom skews the picture. Even though insolvencies have risen sharply over the past two years, on a per-capita basis, consumer financial stress is still below prepandemic levels and in line with the 20-year average from 2000 to early 2020.

The problem is, consumer insolvencies in several provinces with higher-than-average household debt levels, including Ontario, B.C. and Alberta, are already back to or above prepandemic levels and continue to climb.

The question then comes down to the fate of the job market, which ultimately determines whether consumers can keep up with their debt payments, according to Charles St-Arnaud, chief economist with Alberta Central. In September unemployment rose to 6.6 per cent, the highest level since May, 2017.

“So far, the labour market’s resilience has meant that borrowers have been able to weather the shock by allowing them to readjust their lending to reduce the shock from higher interest rates on their regular payments,” he wrote in a note this week. “A deterioration in labour market conditions, especially job losses, and the associated decline in income would likely lead to a jump higher in insolvencies.”

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

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