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Canada’s Households Are Sitting On $100 Billion In Extra Savings. Where Will The Money Go?

All work and no play means a giant cash hoard for (some) Canadian households.
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With little to do in the COVID-19 pandemic, Canada’s households have run up an all-time record high cash pile, about $100 billion more in savings than they otherwise would have had, economists at CIBC say.

“The government of Canada is counting on you to ignite a strong recovery by spending that money when it’s safe to do so,” economists Benjamin Tal and Katherine Judge wrote in a report issued Friday.

Of course, not everyone has shared equally in this new cash bonanza, and ― as seems to be the case with everything in this pandemic ― the wealthier you are, the better you likely made off.

Watch: Why Canadians are hoarding billions in cash. Story continues below.

In a Maru/Blue poll for CIBC, some 40 per cent of those with a household income above $100,000 said they were now saving more than before the pandemic. Only around 20 per cent of those earning below $50,000 said the same.

That squares with Tal and Judge’s earlier research, which showed that even as Canada lost one-fifth of all its low-end jobs in 2020, the number of high-wage jobs rose by around 10 per cent.

For those service-sector workers and small businesses who’ve been hit hardest by the pandemic, that giant cash hoard among higher earners holds a silver lining: When the pandemic ends, a good chunk of that money will go straight back into those parts of the economy that got hit hardest in the first place, CIBC predicts.

“Those high earners that sit on the majority of the excess savings also tend to spend more on the sectors most directly impacted by the virus,” Tal and Judge wrote.

“Income earners in the highest two income quintiles accounted for 57 per cent of spending on recreation, culture, leisure, and accommodations in 2019, suggesting a sharp rebound in demand for those services when they re-open.”

CIBC Economics

The survey found travel is the number-one spending priority for high-income Canadians post-pandemic, named by 36 per cent of those who earn $100,000 or more.

That money could also keep upward pressure going on the stock market; the second and third most popular responses, after travel, were “investing more” and “building savings.”

A sudden unleashing of consumer spending could have some unexpected consequences for the economy, including inflation ― something Tal says we could see more of in the second half of the year and into 2022.

Typically, rising inflation leads to rising interest rates, but most economists doubt the central banks will start hiking rates anytime in the near future, even if inflation takes a jump upwards.

“Both the Fed and the Bank of Canada are telling us that they will tolerate (inflation) since it will be temporary,” Tal wrote in an email exchange with HuffPost Canada.

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