With Canada’s annual inflation rate reaching the central bank’s two per cent target, the country’s affordability crisis could be peaking.
David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives, says the biggest affordability “pain points” remain housing costs and food.
“At this point those costs are continuing to rise, but they’re just not rising as quickly,” Macdonald told CTV News Channel on Tuesday. “So the affordability crisis is going to remain as bad as it is now, but it’s probably not going to get much worse.”
With mortgage interest costs continuing to fall, Macdonald says we should also begin to see rent decreases by the end of 2024.
“Rent is still at an all-time high year-over-year,” Macdonald explained. “But I really think we’re going to benefit over the next three months in particular from the year-over-year [decreases] in mortgage interest costs.”
While vital costs like housing and food remain high, some prices are already falling according to the latest inflation data.
“There are actually a lot of categories now where we’re actually seeing deflation,” Macdonald said. “This is the case if you’re looking for furniture and appliances, if you’re looking for clothing or footwear or jewelry.”
Like many analysts, Macdonald expects the Bank of Canada to continue cutting interest rates as inflation cools. Most Canadians, however, will still face affordability challenges as the economy adjusts.
“It takes a year-and-a-half to two years for the full benefits of lower interest rates to be seen in the economy,” he added. “And so even if we made these big rate drops tomorrow, we wouldn’t see [the benefits] until 2026.”
You can watch the full interview with Macdonald above.
With files from CTV News Channel