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How Inflation Drives Payment Behaviour

How Inflation Drives Payment Behaviour

Inflation is straining consumer cash flow as the increased cost of living forces them to allocate more income across a broader set of goods and services — including non-discretionary items like food, gas and shelter. While consumers stockpiled cash deposits through the pandemic, 2022 has seen these assets fall as the average household's net worth in Q2 2022 was $940,560; down $19,300 from Q2 2021, according to Statistics Canada.

Compared to a decade earlier, Canadians overall (66.5%) in 2021 were less likely to own their homes, suggesting a larger portion are currently renting than in the past.2 Average rent prices for single-detached and semi-detached houses, townhouses and apartments in Canada have climbed for several months. Recent data indicated the average rental was $1,888 per month in May 2022.3 This 3.7% month-over-month increase was the largest since May 2019. 

Inflation has a double impact on the rental market: When inflation occurs, the general prices of goods and services increase — meaning taxes, maintenance and more regarding properties will as well. So even though mortgages are typically fixed, many homeowners/landlords may be forced to increase rents to offset these and other rising costs.4  

On the other side, like all consumers, renters feel the pinch as their spending power diminishes with inflated prices, and they may have to reprioritize payments and reallocate income. Sometimes, this means missing payments on credit debt or other obligations, including rent. In addition, rising interest rates are likely keeping some potential homebuyers on the sidelines, further driving up rental demand and prices.

A recent study from TransUnion looked at consumers' capacities to absorb increased monthly payments due to interest rate increases, and the impact of inflation on discretionary income. 

The research used trended credit data to assess available cash flow based on how much debt consumers pay each month above the minimum due, then simulated interest rate and inflation scenarios to observe how these events impacted payment amounts.

How to arrive at a deeper understanding. 

This research enabled a more thorough assessment of how consumers pay their monthly debt obligations. When measured against the minimum payment due, we can calculate an aggregate excess payment (“AEP”) — the former minus the latter. By incorporating a consumer’s payment behaviour across their entire credit wallet over time, AEP is a robust measure of their capacity to absorb a new debt service obligation or change in payment obligations.

Using these metrics, we estimated how an increase in inflation might impact the ability to pay debt.  

While AEP is a credit metric, one can assume some consumers will continue to pay down debt until they can’t. As this occurs, consumers may need to forgo debt payments on credit or other obligations like rent. Rent typically has a higher priority, but some consumers may hit a negative capacity to absorb beyond just credit debt — which might impact daily living expenses.

The study found as many as 7.8 million Canadian consumers might be unable to absorb a $200 monthly cost of living increase based on their current payment behaviours — and may default on credit obligations. If the cost of living increased by $500 monthly, as many as 9.6 million consumers could be impacted. 

As some renters may default on payments, property owners need to be aware of the incremental risk of sudden economic shocks affecting their own cash flows. In most Canadian provinces, landlords can screen tenants using income information, credit checks, credit references, rental history, guarantees and similar business practices prescribed under law. 

Contact TransUnion to find out how our ShareAble for Rentals solution is helping property technology businesses in the tenant screening market. 


1 Data from Statistics Canada. Distributions of household economic accounts for wealth of Canadian households, second quarter 2022.

2 Data from Statistics Canada. To buy or to rent: The housing market continues to be reshaped by several factors as Canadians search for an affordable place to call home. 

3 Myers, B. June 2022 Rent Report. Retrieved from

4 Rent Increases. CMHC. Retrieved from

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