Household debt is on the rise as the amount Canadians owe grew faster than their earnings, Statistics Canada data shows

Canadian households owe more debt relative to their income than they earlier this year, Statistics Canada data released Monday shows.

According to the federal agency, household debt as a ratio to disposable income rose to 181.7 per cent in the second quarter of this year up from 179.7 per cent in the first quarter. That means for every dollar of disposable income the average household owes about $1.82 of debt.

The change signals a rise in debt levels similar to rates observed before the pandemic, said Andre Bolduc, partner at BDO Canada and a licensed insolvency trustee. The increase isn't unexpected given ongoing inflationary pressures and rising interest rates, he said, and it's likely those influences will mean the ratio continue to rise.

During COVID-19 lockdowns, Canadians had more money available because they had fewer avenues to spend their disposable income. Now that people have reverted to their usual spending habits, their debts are increasing - and so are interest rates and the cost of living, Bolduc said. At the same time, there has been little upward movement for wages.

It's costing more for people to live, and for people with debt it's costing them more to carry that debt as well," Bolduc said.

On a seasonally adjusted basis, households added $56.3 billion of debt in the second quarter including $48.7 billion in mortgages, StatsCan data shows.

The household debt service ratio was 13.63 per cent in the second quarter compared with 13.34 per cent in the first quarter.

David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives, said that while there is an increase in household debt servicing levels, the current rate is consistent with what has been observed for some time.

The rate has been relatively flat since about 2016, said Macdonald, adding it's expected that the rate will fluctuate to some degree.

Meanwhile, Canadian are facing a rapid reversal of the rock bottom" interest rates because, in an attempt to cool inflation, the Bank of Canada hiked key interest rates, Macdonald said.

The impact of those rate hikes are now being reflected in debt and through lessened borrowing power for Canadians seeking high cost lending, such as new mortgages.

What we're seeing ... is the goal of Bank of Canada policy," he said. Since people now feel poorer overall, they will spend less in the economy as a result, Macdonald said.

Further increases in the debt ratio in future quarters are likely since the StatsCan data is an average and lags slightly behind, Bolduc said. While the ratio certainly isn't a surprise, Bolduc is concerned about how indebted the average Canadian could become.

For people carrying high levels of debt and only making monthly minimum payments, the cost of living and further anticipated interest rate hikes could push them over the edge, he said.

People renewing their mortgages will be paying more given the rate changes, Bolduc said.

When that happens, there's less room left in the budget for living expenses, and we know that people who struggle with that are using credit to make ends meet," he said. At some point people hit the wall."

With files from the Canadian Press