Canadian Inflation Surges to 2.4% Y/Y on Oil Price Shock

The headline inflation rate in Canada surged as expected with the War in Iran and the resulting oil price shock. The inflation rate hit 2.4%, up from 1.8% in February, tying for the highest in a year but a bit below market expectations of 2.5%. The surge reflected the initial impact of the war in the Middle East on Canadian consumer prices, as disruptions to tankers from the Persian Gulf triggered energy shortages worldwide. The consumer energy inflation swung to 3.9% from the deflation rate of 9.3% in the previous month, enough to raise transportation inflation to 3.7% (vs -0.8% in February). In turn, prices accelerated for shelter (1.7% vs 1.5%) and recreation and education (2.6% vs 0.5%). Meanwhile, base effects from the reintroduction of GST/HST taxes continued to impact food inflation, which fell to 4% from the 5.4% in February. The CPI rose 0.9% from the previous month, driven by a 21.2% surge in gasoline prices. Excluding gasoline, the CPI rose at a slower year-over-year pace in March (+2.2%) than in February (+2.4%). The CPI was up 0.9% month-over-month in March. On a seasonally adjusted monthly basis, the CPI increased 0.5%.

Higher energy prices drive up inflation

Energy prices rose 3.9% on a year-over-year basis in March, after decreasing 9.3% in February. On a monthly basis, energy prices rose 13.1% in March.

Higher gasoline prices were the primary driver of the year-over-year acceleration in the CPI, as consumers paid 5.9% more for gasoline in March than in the same month the previous year. Prices rose 21.2% in a month, the largest monthly gasoline price increase on record, driven by a supply shock from the conflict in the Middle East. However, this monthly effect was muted year over year due to the comparison with prices from March 2025, which included the since-removed consumer carbon levy. The removal of the consumer carbon levy will no longer impact the 12-month movement as of April 2026, and this will be reflected in next month’s CPI release.

Moderating the acceleration in energy prices were lower prices for natural gas (-18.1%), which are largely dependent on North American supply and therefore more insulated from global price changes.

Prices for food purchased from stores rose 4.4% on a yearly basis in March, after increasing 4.1% in February.

On a year-over-year basis, prices for fresh vegetables increased 7.8% in March, the largest increase since August 2023 (+8.7%), after rising 0.5% in February. Cucumbers, peppers and celery all had notable price growth in March, due in part to tighter supplies related to adverse growing conditions in producing countries.

Core inflation measures also came in below expectations, with core inflation hitting 2.0% and the CPI trimmed-mean 2.2% from a year ago, the slowest pace in five years, amid weak housing resales and smaller rent price increases.

Bottom Line

It is very good news that the inflation backdrop softened last month, before the onslaught of the Iran war and the oil price shock. Some of the weaker base effects will be evident in the March CPI data as well, mitigating the impact of soaring energy and commodity prices on this month’s headline inflation number.

The Bank of Canada and the U.S. Federal Reserve will remain on the sidelines at the next statement date on April 29, as a relatively quick end to the Iran war would keep a lid on inflation. President Trump has asked NATO countries to send warships to the Middle East to help open the Strait of Hormuz. The sooner the war ends, the sooner the oil price shock will dissipate. Given the uncertainty, the central banks will do best to keep their powder dry this time around, particularly given that labour markets in both countries have weakened substantially.

The Canadian Economy Shrinks by 0.6% in Q4, Owing to a Decline in Business Inventories
Statistics Canada reported this morning that the Canadian economy contracted by 0.6% at a seasonally adjusted annual rate, a significant reversal from the 2.4% expansion posted in Q3. The weaker growth rate reflected a steep decline in business inventories, which was partially offset by increases in household spending, exports, and government capital spending.

Economists surveyed by Bloomberg were expecting a 0.2% annualized decline over the last three months of 2025, while the Bank of Canada projected flat growth.

As US tariffs weighed on Canadian exports for much of the year, real GDP increased by 1.7% in 2025, marking the slowest annual growth since the economy contracted in 2020 owing to the COVID pandemic. Lower exports, particularly to the United States, were the main contributor to the slower rise in GDP in 2025.

A preliminary estimate suggests real GDP remained unchanged in January, after increasing by 0.2% in December, slightly stronger than economists’ estimate of 0.1%.

Exports rose 1.5% in the fourth quarter, after increasing 0.9% in the third quarter. The growth in the fourth quarter was led by higher exports of unwrought gold and of unwrought aluminum and aluminum alloys. Despite the increases in the latter half of the year, exports fell 1.7% in 2025, as shipments to the United States did not fully recover following the drop in the second quarter.

Imports edged up 0.3% in the fourth quarter, as higher imports of computers, clothing and footwear, and metal ores were largely offset by lower imports of pharmaceutical and medicinal products. For the year, imports were down 0.4% in 2025, driven by the 2.9% decline in the third quarter.

The better-than-expected Q3 gain will not be sustained in Q4, as Statistics Canada’s advance estimate for October showed industrial gross domestic product fell at a -0.3% monthly pace.

The current overnight policy rate of 2.25% remains stimulative, but until the likely outcome of trade negotiations with the US is resolved, Canada’s economy will be on shaky ground. It is unclear whether the Canada-US-Mexico free trade agreement will be extended beyond this year. If not, Canada will be in for a significant trade policy redo as it seeks replacement markets for its exports.

Household spending rose 0.4% in the fourth quarter after declining 0.2% in the third quarter. Higher expenditures on rent and financial services in the fourth quarter were partially offset by lower spending on new passenger vehicles and alcoholic beverages, as overall expenditures on goods declined for a second consecutive quarter.

On an annual basis, household final consumption expenditure was up 2.3% in 2025, keeping pace with the 2.2% growth in each of the previous two years. The rise in 2025 was led by increased household spending on financial services and rent.

Total capital investment rose 0.8% in the fourth quarter, driven by increased government investment in weapons systems. In contrast, business capital investment edged down 0.1% in the fourth quarter, as both residential and non-residential investment decreased. These declines were moderated by increased business investment in machinery and equipment, primarily computers (+19.6%) and intellectual property products, namely software (+0.7%).

Annually, total capital investment increased 1.4% in 2025, led by higher government investment in weapons systems (+45.9%) and engineering structures (+6.7%). Business investment rose 0.3% in 2025, as higher residential construction (+1.0%) and non-residential construction (+1.6%) were largely offset by weaker investment in machinery and equipment (-3.5%). The year 2025 was the third consecutive year in which government capital investment contributed more to GDP growth than business capital expenditures.

Business residential investment declined in the fourth quarter, led by decreased ownership transfer costs (-2.4%), a measure of resale market activity, and lower renovations (-1.3%). New construction (-0.5%) also declined in the fourth quarter due to lower work put in place for single- and apartment units.

Higher business residential investment in 2025 represented the first annual increase since 2021, as increased new construction (+1.0%) and renovations (+2.7%) more than offset the decline in ownership transfer costs (-3.4%).

Bottom Line

While weaker-than-expected Q4 GDP figures might normally trigger an easing move by the Bank of Canada, the Governing Council has made it very clear that it remains concerned about inflation. Tariff uncertainty is especially high now that the Supreme Court has found the Trump administration misused the International Emergency Economic Powers Act (IEEPA) to impose sweeping, open-ended tariffs — striking down the legal foundation for a central pillar of the administration’s trade strategy.

The decision removes the fastest way to impose broad country-level duties, but it does not end the tariff debate. Other statutory authorities remain in play, and businesses and trading partners are left to assess what comes next.

The ruling also lands amid sustained political pressure around affordability, which may shape how aggressively trade tools are redeployed. Even if tariff rates decline, businesses must now assess whether alternative authorities will be used to reimpose them. For the real economy, restoring stability may matter as much as reducing tariffs themselves.

Housing Activity Fell Again in January–Depressed by Record Winter Storm
Today’s release of January housing data by the Canadian Real Estate Association (CREA) showed the housing market frozen solid by the record winter storms. Both home sales and prices continued their downward trend, but have yet to attract the beleaguered first-time homebuyer.

The number of home sales recorded over Canadian MLS® Systems fell 5.8% on a month-over-month basis in January 2026.

“The monthly decline in national home sales was driven primarily by less activity in the Greater Golden Horseshoe and Southwestern Ontario, suggesting that the story was probably more about a historic winter storm than a downshift in demand,” said Shaun Cathcart, CREA’s Senior Economist. “Notwithstanding the chilly start to the year, we continue to expect 2026 will ultimately be defined by pent-up demand from first-time buyers finally seeing a chance to enter the market.”

New Listings

Similar to what happened in January 2025, new supply increased month over month in January 2026, rising 7.3% as sellers appeared eager to start the year.

The burst of new supply was driven by about two-thirds of local markets, and led by Montreal, Quebec City, Calgary, Greater Vancouver, and Victoria. Meanwhile, Central and Southwestern Ontario were far less prominent and, in many cases, recorded declines. This reinforces the view that winter weather was a primary factor in January in those regions, as it appears to have suppressed both demand and supply.

With a rare combination of a sizeable increase in new listings and a sharp slowdown in sales in January, the national sales-to-new listings ratio dropped to 45% compared to 51.3% at the end of 2025. The long-term average for the national sales-to-new-listings ratio is 54.8%, with readings generally between 45% and 65%, consistent with balanced housing market conditions.

There were 140,680 properties listed for sale on all Canadian MLS® Systems at the end of January 2026, up 4.5% from a year earlier but 11.4% below the long-term average for that time of year.

There were 4.9 months of inventory nationally at the end of January 2026, up from 4.6 months at the end of December. The long-term average for this measure of market balance is five months of inventory. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

In line with more supply and less demand in January 2026, the National Composite MLS® Home Price Index (HPI) fell by 0.9% on a month-over-month basis.

The non-seasonally adjusted National Composite MLS® HPI was down 4.9% compared to January 2025.

Regionally, prices remain down year over year in British Columbia, Alberta, and Ontario, offsetting gains in other provinces. An analysis by city shows the largest year-over-year declines dip into double digits in Hamilton-Burlington and Oakville-Milton, contrasted with double-digit gains in Sudbury, Quebec City, and St. John’s, Newfoundland.

Home Prices

Regionally, prices remain down year over year in British Columbia, Alberta, and Ontario, offsetting gains in other provinces. An analysis by city shows the largest year-over-year declines dip into double digits in Hamilton-Burlington and Oakville-Milton, contrasted with double-digit gains in Sudbury, Quebec City, and St. John’s, Newfoundland.

Bottom Line

Today’s data end a year that saw house prices drift lower despite falling interest rates, as a simmering trade war with Canada’s largest trading partner caused higher unemployment and considerable job uncertainty. Although U.S. tariffs affect only a limited volume of Canadian goods, and the economy hasn’t tipped into a recession, the unpredictability of President Donald Trump’s trade policy has stoked economic insecurity.

In some regions, the price decline has now wiped out a sizable share of the gains homeowners saw during the torrid Covid market from 2020 to 2022, when overnight interest rates were reduced to a record low of 25 basis points. Back then, ultralow interest rates drove home prices to surge, particularly in smaller cities where remote workers fled to take advantage of a lower cost of living.

There is considerable pent-up demand among potential first-time buyers who will likely dip their toes in the market once winter passes. This year, we also see a record volume of refis and renewals, which will increase monthly mortgage payments and dampen household purchasing power. Affordability remains a challenge for first-time buyers, but mortgage rates and prices are considerably below year-ago levels. A reawakening of housing activity is likely as the spring market approaches.

With inflation well-behaved, the Bank of Canada has the flexibility to cut the overnight rate further if the economy falters.

CPI Inflation in Canada Fell A Tick to 2.3% Y/Y in January on Gasoline Price Decline
The Consumer Price Index (CPI) rose 2.3% on a year-over-year basis in January, following a 2.4% increase in December.

The gasoline price index was the largest contributor to the deceleration in headline inflation, with a larger decline in January than in December. Excluding gasoline, the CPI rose 3.0% in January, matching the December increase.

Indexes with year-over-year movements impacted by the temporary GST/HST break in January 2025 continued to put upward pressure on the year-over-year all-items increase in January 2026. Among the affected indexes, the CPI remained most affected by the acceleration in prices for restaurant meals, and to a lesser extent, by prices for alcoholic beverages, toys, and children’s clothing.

The core inflation measures decelerated further in January, with the BoC’s two favourite measures easing to their lowest levels in a year (see chart below).

Prices at the pump fell 16.7% year over year in January, after a 13.8% drop in December. The larger year-over-year decline was mainly due to a base-year effect. The index rose 0.5% month over month in January 2026, compared with a 4.0% increase in January 2025, when crude oil prices rose. Additionally, the partial reintroduction of the provincial gas tax in Manitoba in January 2025 is no longer impacting the 12-month movement.

For food purchased from restaurants, prices were higher in January 2026 (+12.3%) than in January 2025, when prices were lower due to the GST/HST break.

Similarly, prices rose on a year-over-year basis for other previously tax-exempt goods in January 2026, including alcoholic beverages purchased from stores (+7.9%), alcoholic beverages served in licensed establishments (+9.0%), toys, games (excluding video games) and hobby supplies (+8.7%) and children’s clothing (+6.3%).

Year over year, prices for cellular services decelerated in January (+4.9%) compared with December (+14.6%), reflecting a base-year effect after six consecutive months of upward pressure. On a month-over-month basis, prices declined in January 2026 (-0.8%) after increasing in January 2025 (+8.3%).

Prices for food purchased from stores rose 4.8% year over year in January, following a 5.0% increase in December. The slower price growth was mainly driven by a decline in fresh fruit prices (-3.1%) in January, after a 4.5% increase in December. Amid generally strong or stable harvests in producer regions, the largest contributors to downward pressure on prices were berries, oranges and melons.

Since early 2024, growth in shelter costs has slowed year over year. In January 2026, prices continued to decelerate, rising 1.7%. This is the first time in nearly five years that year-over-year shelter price growth has fallen below 2.0%. Slower growth in rents and mortgage interest costs drove the deceleration.

Rent prices rose at a slower pace year over year in January (+4.3%) than in December (+4.9%). Rent prices decelerated the most in Prince Edward Island (+0.2%) and Saskatchewan (+1.8%).

The mortgage interest cost index rose 1.2% year over year in January, following a 1.7% increase in December. This index has been decelerating since September 2023.

In January, prices rose at a slower pace in nine provinces than in December. Year-over-year price growth accelerated in British Columbia due to a base-year effect, as hotel prices declined on a monthly basis in January 2025 after increasing in December 2024, coinciding with a series of high-profile concerts in Vancouver.

Bottom Line

Although inflation pressures are dissipating, this report alone will not trigger a Bank of Canada rate cut when the Bank meets again on March 18. It is unlikely to move the Bank of Canada from the sidelines as it continues to evaluate how US tariffs are affecting the economy. The data suggest that Americans are paying the bulk of the tariffs.

The Bank of Canada’s preferred measures of core inflation decelerated, with the median gauge edging down to 2.5% from 2.6%, and trim falling to 2.4% from 2.7%.

What the Canadian economy needs is greater clarity on the future of the Canada-Mexico-United States (CUSMA) trade agreement. Reduced uncertainty is the key ingredient required for a rebound in housing activity, particularly in the regions of Ontario and Quebec hardest hit by the tariffs.

The central bank kept its policy rate at 2.25% last month for the second consecutive meeting and has signalled an aversion to juicing demand at this time. In a speech earlier this month, Governor Tiff Macklem warned that cutting interest rates amid a supply-side shock could stoke inflation.

Canadian Jobs Growth Slowed Markedly in January as the Unemployment Rate Fell Sharply to 6.5%.

Today’s Canadian Labour Force Survey for January was weaker than expected. Employment declined by 24,800 (-0.1%), and the employment rate decreased 0.1 percentage points to 60.8%. This followed only a small gain in December and was the first decline in the employment rate since August 2025.

In January, a decrease in part-time employment (-70,000; -1.8%) was partly offset by a gain in full-time work (+45,000; +0.3%). Compared with 12 months earlier, overall employment was up by 134,000 (+0.6%), driven by gains in full-time work (+149,000; +0.9%).

The number of private sector employees fell by 52,000 (-0.4%) in January, partly offsetting a net increase of 128,000 (+0.9%) in the last three months of 2025. There was little change in the number of public sector employees (+13,000; +0.3%) and self-employed workers (+14,000; +0.5%) in January.

The jobless rate fell by 0,3 percentage points to 6.5% in January, driven by a decline in the number of people searching for work. The unemployment rate in January was the lowest since September 2024, down 0.6 percentage points from the recent high of 7.1% recorded in August and September 2025.

The labour force participation rate—the proportion of the population aged 15 and older who were employed or looking for work—decreased 0.4 percentage points to 65.0% in January, following an increase of 0.2 percentage points in December. The decline in January was concentrated in Ontario, the hub of the auto sector, manufacturing generally, and steel production. Recent data also show that the number of entry-level positions has fallen sharply, likely due to artificial intelligence replacing these positions.

The unemployment rate fell across most major demographic groups in January, largely reflecting declines in the number of job searchers.

Manufacturing jobs were hard hit by the tariffs and trade uncertainty.

The number of people working in manufacturing fell by 28,000 (-1.5%) in January, bringing employment down to levels last observed in August 2025. The decline in January was concentrated in Ontario. On a year-over-year basis, overall employment in manufacturing was down 51,000 (-2.7%).

There were also fewer workers in educational services (-24,000; -1.5%) and public administration (-10,000; -0.8%) in January. Employment in both industries was little changed year over year.

On the other hand, employment increased in information, culture and recreation (+17,000; +2.0%) in January, continuing an upward trend that began in September 2025. On a year-over-year basis, employment in this industry was up 30,000 (+3.6%) in January.

Employment also rose in business, building and other support services (+14,000; +2.1%) in January, the first increase since October 2024. Employment in this industry had previously followed a downward trend through most of 2025. Compared with 12 months earlier, employment in business, building and other support services was down 38,000 (-5.3%) in January.

Bottom Line

The Bank of Canada has reiterated that its primary mandate is price stability, effectively leaving the task of closing the output gap to fiscal authorities. Fiscal support delivered through large capital-spending projects will be implemented too slowly to materially offset near-term weakness in activity. If layoffs persist at their recent pace and the United States were to withdraw from the Canada‑US‑Mexico Agreement, the case for an additional round of monetary easing would strengthen markedly.

Absent that downside scenario, the more plausible path is a slow and limited normalization of policy. Market pricing currently anticipates that the next move by the Bank of Canada will be to raise the overnight policy rate, but this is unlikely until 2027. If labour force weakness and higher mortgage costs associated with this year’s huge volume of mortgage renewals, in combination with AI-induced job losses, weaken the economy, the Bank of Canada might be willing to cut the overnight policy rate later this year. Uncertainty has already markedly weakened the housing market, despite the reduction in home prices and mortgage rates over the past year.

Housing Activity Fell in December, Rounding Out A Disappointing Year

Last weeks release of December housing data by the Canadian Real Estate Association (CREA) showed the market ended 2025 with declining sales and prices due to ongoing economic uncertainty.
The number of home sales recorded over Canadian MLS® Systems declined 2.7% m/m in December. On an annual basis, transactions totaled 470,314 units last year, a 1.9% decrease from 2024, despite a series of Bank of Canada rate cuts.

“There doesn’t appear to have been much rhyme or reason to the month-over-month decline in home sales in December, which was simply the result of coincident but seemingly unrelated slowdowns in Vancouver, Calgary, Edmonton, and Montreal,” said Shaun Cathcart, CREA’s Senior Economist. “For that reason, it would be prudent for market observers to resist the temptation to trace a line from the end of 2025 into 2026. Rather, we continue to expect sales to move higher again as we get closer to the spring, rejoining the upward trend that was observed throughout the spring, summer, and early fall of 2025.”

New Listings
New supply declined by 2% on a month -over-month basis in December, marking a fourth straight monthly drop. Combined with a slightly larger decrease in sales activity in December, the sales-to-new-listings ratio eased to 52.3% from 52.7% in November. This remains close to the long-term average national sales-to-new listings ratio of 54.9%. Readings roughly between 45% and 65% are generally consistent with balanced housing market conditions. There were 133,495 properties listed for sale on all Canadian MLS® Systems at the end of December 2025, up 7.4% from a year earlier but 9.9% below the long -term average for that time of year. Inventories have been falling since May 2025 owing to the mid -year rally in demand, meaning active listings could be back posting year-over-year declines around the time this year’s spring market gets going.
“While we remain in the quiet time of year for a little while longer, the spring market is now just around the corner, and it is expected to benefit from four years of pent -up demand, and interest rates that at this point are about as good as they are going to get,” said Valérie Paquin, CREA Chair. “Barring any further major uncertainty -causing events, that means we should see a more active market this year.”

There were 4.5 months of inventory on a national basis at the end of December 2025, up slightly from 4.4 months, which had been the measure since August. The long-term average for this measure of market balance is 5 months of inventory. Based on the measure of one standard deviation above and below that long -term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices
The National Composite MLS ® Home Price Index (HPI) fell by 0.3% between November and December 2025. It was similar to the dip recorded in November and could reflect some sellers making price concessions to sell properties before the end of the year. Most of the overall price softening in December came from markets in Ontario’s Greater Golden Horseshoe region, which was hit hard by US tariffs. The non-seasonally adjusted National Composite MLS® HPI was down 4% from December 2024. Under the surface, year-over-year declines are larger for condo apartments and townhomes, and smaller for one- and two-storey detached homes.

Bottom Line
Last weeks data end a year that saw house prices drift lower despite falling interest rates, as a simmering trade war with Canada’s largest trading partner caused higher unemployment and considerable job uncertainty. Though US tariffs apply to a limited volume of Canadian goods, and the economy didn’t tip into a recession, the unpredictability of President Donald Trump’s trade policy has stoked a sense of economic insecurity.
In some regions, the price decline has now wiped out a sizable proportion of the gains homeowners saw during the torrid Covid market from 2020 to 2022, when overnight interest rates were reduced to a record-low 25 basis points. Back then, ultralow interest rates caused home prices to surge, particularly in smaller cities to which remote workers fled to take advantage of a lower cost of living.
Vancouver and Toronto remain by far the most expensive large cities. The benchmark price in Greater Vancouver was C$1.14 million in December. In the Toronto region, it was C$962,300 — down about 6% from a year earlier. With many regional markets soft, sellers are now pulling back. New listings dropped 2% in December from the previous month, the fourth straight monthly decline. But the total number of homes on the market last month was still 7.4% higher than the previous year. That’s the equivalent of about 4.5 months of inventory.
We concur with the view that there is considerable pent-up demand among potential first-time buyers who will likely dip their toe in the market once winter passes. This year, we also see a record volume of refinances and renewals, which will increase monthly mortgage payments and dampen household purchasing power.

Canadian Job Growth Slows Markedly in December as the Unemployment Rate Rises to 6.8%

Today’s Canadian Labour Force Survey for December was weaker than expected. Employment was little changed (+8200; 0.0%), and the employment rate held steady at 60.9%. This followed three consecutive monthly increases.

The jobless rate rose 0.3 percentage points to 6.8%, as more people searched for work. The increase in the unemployment rate in December partially offsets a cumulative decline of 0.6 percentage points in the previous two months. Employment rose among people aged 55 and older, while it fell among youth aged 15 to 24.

Full-time employment rose by 50,000 (+0.3%) in December, while part-time employment fell by 42,000 (-1.1%). The decline in part-time work in the month partially offsets a cumulative gain of 148,000 (+3.9%) in October and November. Over the 12 months to December 2025, part-time employment rose at a faster pace (+2.6%; +99,000) than full-time employment (+0.7%; +128,000).

In December, there was little change in the number of private- and public-sector employees, as well as in the number of self-employed workers.

There were 1.6 million people unemployed in December, an increase of 73,000 (+4.9%) from November.
The participation rate—the proportion of the population aged 15 and older who were employed or looking for work—rose by 0.3 percentage points to 65.4%. On a year-over-year basis, the labour force participation rate was unchanged in December. The unemployment rate for youth aged 15 to 24 rose 0.5 percentage points to 13.3% in December, as fewer youth were employed (-27,000; -1.0%). Labour market conditions had previously improved for youth in October and November, with employment rising by 70,000 (2.6%) and the youth unemployment rate falling by 1.9 percentage points over this period.

In 2025, Trump’s tariff policy and negative attitude towards Canada have caused considerable uncertainty, having a marked deleterious effect on the Canadian economic outlook, particularly in sectors dependent on US demand. Job vacancies also fell during 2025.

Bottom Line

The Bank of Canada has reiterated that its primary mandate is price stability, effectively leaving the task of closing the output gap to fiscal authorities. By early next year, it will likely become evident that fiscal support delivered through large capital projects is rolling out too slowly to offset near-term weakness in activity materially. If layoffs persist at their recent pace and the United States were to withdraw from the Canada‑US‑Mexico Agreement, the case for an additional round of monetary easing would strengthen.

Absent that downside scenario, the more plausible path is a slow and limited normalization of policy. Market pricing currently anticipates that the next move by the Bank of Canada will be to raise the overnight policy rate, but that is not likely until at least late this year.

Good News on the Inflation Front Will Keep the BoC on the Sidelines

The Consumer Price Index (CPI) held steady at 2.2% year over year in November, as core inflation continued to ease. Accelerating costs for food and some other goods were offset by slowing price growth for services.

In November, prices for services rose 2.8% year over year, compared with a 3.2% increase in October. Prices for travel tours declined 8.2% last month following a 2.6% increase in October. Monthly, these prices fell 12.0%, as lower demand for destinations in the United States put downward pressure on the index.

Prices for traveller accommodation fell to a greater extent on a year-over-year basis in November (-6.9%) than in October (-0.6%). The most significant contributor to the lower prices was Ontario (-20.2%), partially due to a base-year effect from a swift monthly increase in November 2024 (+11.0%), which coincided with a series of high-profile concerts in Toronto.

Lower prices for travel tours and traveller accommodation, in addition to slower growth for rent prices, put downward pressure on the all-items CPI.

Offsetting the slower growth in services on an annual basis were higher prices for goods, driven by increases in grocery prices and a smaller decline in gasoline prices. Excluding gasoline, the CPI rose 2.6% for the third consecutive month.

The CPI rose 0.1% month over month in November. On a seasonally adjusted monthly basis, the CPI increased 0.2%.

Grocery Price Inflation Highest Since the end of 2023

Prices for food purchased from stores rose 4.7% year over year in November after increasing 3.4% in October. The increase in November was the largest since December 2023 (+4.7%). The main contributors to the acceleration in November 2025 were fresh fruit (+4.4%), led by higher prices for berries, and other food preparations (+6.6%).

In November, prices for fresh or frozen beef (+17.7%) and coffee (+27.8%) remained significant contributors to overall grocery inflation on an annual basis. Higher beef prices have been driven, in part, by lower cattle inventories in North America. Adverse weather conditions in growing regions have affected coffee prices, which have risen amid American tariffs on coffee-producing countries, contributing to higher prices for refined coffee.

On a monthly basis, grocery prices rose 1.9% in November, the largest month-over-month increase since January 2023.

Acting as a bit of a counterweight, shelter costs—the earlier inflation villain—continue to moderate. Owned accommodation expenses are now up just 1.7% y/y, the slowest pace in almost a decade amid sagging home prices. Rent inflation remains sticky, but did tick down to 4.7% y/y last month. Keep an eye on electricity prices, which have been a major issue in the US, where AI data centers consume large amounts of electricity. The cost of electricity jumped 1.5% in the month and is now up 3.4% y/y. Telephone services have also leapt recently, after falling heavily the past two years; they are now up 11.7% y/y, the fastest increase since 1982.

The good news is that inflation will average just over 2% for all of 2025, down from 2.4% last year and the lowest annual tally in five years. The less-good news is that this moderation was mainly due to the removal of the consumer carbon tax, which alone shaved about half a point off the annual average.

The main core inflation measures decelerated in November, with the BoC’s two measures both easing two ticks to 2.8% y/y (and both up just 0.1% m/m in seasonally adjusted terms). And, ex food & energy prices also rose just 0.1% m/m, cutting the annual rate three ticks to a moderate 2.4% y/y pace.

Bottom Line

This report confirms the Bank’s hold on the policy rate. Aside from food prices, inflation seems to be dissipating. The overall economy is in better-than-expected shape as the upward revisions in GDP since 2022 were largely the result of better than expected productivity growth–long a big concern for the Canadian economy.

The backdrop of better growth and lower inflation will keep the Bank of Canada on hold for most of 2026, as the next move in rates is likely to be a hike, but not until late next year. In the meantime, the biggest loser in the past year has been the housing market.

Today’s release of existing home sales by the Canadian Real Estate Association suggests particularly weak activity in Ontario, the region hardest hit by the tariff uncertainty. A cautious Bank of Canada will monitor the effect of rapidly rising food prices on inflation expectations. With any luck at all, core inflation will continue to decelerate, keeping the Bank on the sidelines for much of next year.

Hopefully, greater clarity on the Canada-Mexico-US agreement will be forthcoming in the New Year. Reduced uncertainty is the key ingredient required for a rebound in housing activity, particularly in the regions of Ontario and Quebec hardest hit by the tariffs.

Signs of Improvement in Canadian Housing Activity
Today’s release of October housing data by the Canadian Real Estate Association (CREA) showed the national housing market bounced back, with sales and prices rising. Buyers benefited from the interest rate cuts this year.

The number of home sales recorded over Canadian MLS® Systems edged up 0.9% on a month-over-month basis in October 2025, marking six monthly gains in the last seven months.

“After a brief pause in September, home sales across Canada picked back up again in October, rejoining the trend in place since April,” said Shaun Cathcart, CREA’s Senior Economist. “With interest rates now almost in stimulative territory, housing markets are expected to continue to become more active heading into 2026, although this is likely to be tempered by ongoing economic uncertainty.”

New Listings

New supply declined 1.4% month over month in October. Combined with an increase in sales activity, the sales-to-new-listings ratio tightened to 52.2% from 51% in September. The long-term average for the national sales-to-new listings ratio is 54.9%, with readings roughly between 45% and 65% generally consistent with balanced housing market conditions.

There were 189,000 properties listed for sale on all Canadian MLS® Systems at the end of October 2025, up 7.2% from a year earlier but very close to the long-term average for that time of the year.

“As we head into the quiet winter season, we continue to see clues that underlying demand for housing is picking up steam,” said Valérie Paquin, CREA Chair. “All eyes will be on next year’s spring market to see if all that pent-up demand will finally come off the sidelines in a big way.”

There were 4.4 months of inventory on a national basis at the end of October 2025, basically unchanged from July, August, and September and the lowest level since January. The long-term average for this measure of market balance is five months of inventory. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices

The National Composite MLS® Home Price Index (HPI) edged up 0.2% between September and October 2025. The non-seasonally adjusted National Composite MLS® HPI was down 3% compared to October 2024, the smallest year-over-year decline since March.

Bottom Line

Homebuyers are responding to improving fundamentals in the Canadian housing market. Supply has risen as new listings surged until May of this year. Additionally, the national benchmark average price is 3.1% lower than it was a year earlier. That decrease was smaller than in September.

Buyers are gradually nudged off the sidelines by lower interest rates and reduced housing prices. While the Greater Golden Horseshoe’s housing activity was dampened by trade uncertainty and earlier overbuilding, even there, the tides are gradually turning. We can look forward to a more robust spring market.

Canadian Inflation Slows in October, But Not Enough to Trigger Another BoC Rate Cut in December

The Consumer Price Index (CPI) rose 2.2% on a year-over-year basis in October, down from 2.4% in September. The all-items CPI decelerated largely due to gasoline prices, which fell at a faster year-over-year pace in October (-9.4%) than in September (-4.1%). Excluding gasoline, the CPI rose 2.6% in October, matching the September increase. This was not enough of a decline to move the Bank of Canada off the sidelines, particularly given the recent strength in manufacturing sales, which surged 3.3% in September (estimated at 2.7%). Wholesale trade also surprised to the upside, 0.6% (estimated at 0.0%).

Slower growth in grocery prices further contributed to the CPI’s deceleration in October, which was moderated by surging cellular phone plan prices. Though grocery prices decelerated in October, prices remained elevated and have exceeded overall inflation for nine consecutive months.

Consumers paid more year over year in October for homeowners’ and mortgage insurance (+6.8%) and passenger vehicle insurance premiums (+7.3%). Among the provinces, prices rose the most in Alberta for both measures, with a 13.7% increase in homeowners’ home and mortgage insurance and a 17.8% increase in passenger vehicle insurance premiums.

Since October 2020, homeowners’ insurance and mortgage insurance prices have risen 38.9% nationally, while passenger vehicle insurance prices have risen 18.9%.

The index for property taxes and other special charges, priced annually in October, rose 5.6% year over year, down from 6.0% in 2024.

The CPI rose 0.2% month over month in October. On a seasonally adjusted monthly basis, the CPI was up 0.1%.

In October, both the CPI median and the CPI trimmed mean came in cooler than economists had expected. The average of these metrics was 2.95% in October.

The old measure of core—prices excluding food and energy—rose 0.3% m/m on an adjusted basis, boosting the yearly rate three full ticks to 2.7% y/y. A pop in cellular services was a significant driver there; in fact, the 7.9% y/y rise in all telephone services was the largest yearly increase since 1982. Still, a pullback in grocery prices, perhaps in part due to the rollback of retaliatory tariffs, helped moderate the Bank of Canada’s core measures. Median prices edged up just 0.1% m/m (s.a.), trimming the annual rate to 2.9%, while trim eased a tick to 3.0% y/y.

Rent perked up again to 5.2% y/y (from 4.8%), and remains the single most significant driver of inflation due to its heavy weight in the index.

Bottom Line

This report does little to change the BoC’s view that underlying inflation remains close to 2-1/2%; but, if anything, most underlying metrics have been stuck a bit above that, or have just crept up there. In other words, this report is just another reason to believe the Bank is moving to the sidelines in December.