Canada’s latest inflation numbers have softened expectations for another rate cut by the Bank of Canada, but not by much.

The September inflation report from Statistics Canada showed the annual inflation rate rose by 2.4% in September, up from 1.9% in August and higher than the 2.2% expected by analysts.

The StatsCan report shows declining gasoline prices were outpaced by rising grocery costs.

Expectations for a rate reduction have diminished but remain strong.  Markets pulled back the chances of a cut to about 70%, down from 77% before the report.

Most economists are basing their forecasts on the central bank’s preferred measures of core inflation, which have largely stabilized.  They also point out that the Bank of Canada has expanded the data sets it is using to guide its rate decisions.  For example, Canada’s rising unemployment numbers have taken on more importance.

In a speech to mortgage professionals, just before the inflation numbers were released, well known economist Benjamin Tal raised the spectre of a recession.

“We are in a recession,” if it’s not a formal recession, it’s a per-capita recession for sure — especially if you live in Ontario and B.C.,” Tal said.

Tal says the BoC has “the green light to cut interest rates.” He is predicting a 25-basis-point reduction at the next policy meeting, with another move possible by early 2026.

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Increasing home resales across Canada took a breather in September, but prices held fairly steady.

The Canadian Real Estate Association’s latest report shows sales dipped 1.7% last month compared to August, ending a run of gains that started back in April. Once again the Greater Toronto Area was the outlier, showing a year-over-year increase of 8.5% for September.  That was outweighed by declines in Greater Vancouver, Calgary, Edmonton, Ottawa, and Montreal.

There were decent gains on a year-over-year basis with September sales coming in 5.2% higher than in 2024.

Pricing, as measured by CREA’s National Composite Home Price Index, was virtually unchanged from August to September (-0.1%), but recorded a 3.4% decline on a y/y basis.  The national average home price was $676,000 in September, up 0.7% from September 2024.

Canada’s realtors continue to forecast ongoing increases in sales and prices but they are tempering their expectations.  Uncertainty triggered by U.S. tariffs and trade policy seems to have been enough to see interested home buyers step away from the market, especially in British Columbia and Ontario.

CREA’s latest Quarterly Forecast predicts a 1.1% decline in sales for 2025, with a 1.4% drop in the national average home price to $676,700.  In 2026, national home sales are forecast to rebound by 7.7%, with the national average home price rising by 3.2% to $698,600.

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A pair of new reports say housing affordability in Canada is getting better.  Ottawa’s fiscal watchdog, the Parliamentary Budget Officer (PBO), and well known housing economist Robert Hogue say falling interest rates and rising household incomes are the key factors in the improvement.

In his report economist Hogue calculates the national average share of household income needed to cover ownership costs has fallen to 53.6% (as of Q2 2025) from its all-time high of 63.5% at the end of 2023.  That percentage varies greatly across the country though.  In Vancouver it takes 89.2% of income to pay for housing costs while in Edmonton it is 32.2%.

Hogue also says the pace of affordability gains is expected to slow largely due to declining wage growth as more slack develops in the labour market.  Unemployment in Canada no stands at 7.1%.

The Parliamentary Budget Officer’s report tracks housing affordability based on the gap between average home prices and what the typical household can afford.  It shows cheaper borrowing costs and stronger wages narrowed the affordability gap from 80% in September 2023 to 34% in August 2025.

As with the Hogue report, the PBO says affordability gains varied widely across the country.  The biggest improvements were seen in Toronto and Hamilton, while Calgary, Montreal and Quebec City saw affordability deteriorate.

The Bank of Canada’s trendsetting Policy Rate has dropped to 2.25% and another quarter-point reduction is expected by the end of the year.

Published by First National Financial LP