Headline CPI has cooled, but Canada’s under‑the‑hood inflation isn’t “mission accomplished.” Shelter and services are sticky, wages are firm, and the loonie is soft. Translation: the Bank of Canada can cut, but it can’t floor it.
The Sticky Parts of CPI
- Shelter (rent + mortgage interest + utilities): Rents keep rising on structural shortages. Mortgage interest costs are easing as cuts begin, but renewal waves keep pressure elevated. Utilities and municipal fees aren’t helping.
- Services ex‑shelter: Restaurant, travel, personal services — all buoyed by wage growth and resilient demand. Services inflation tends to be persistent.
- Groceries: Off peak, but still above pre‑COVID norms. Less supply‑chain chaos, but higher labour, logistics, and packaging costs keep a floor under food inflation.
- Energy: Gas/diesel swings feed into CPI with a lag. Any crude spike or refinery issue pops headline back up.
Core Measures Say “Not Yet”
- The Bank of Canada’s trimmed‑mean and median measures are hovering near ~3% — better than 2023, still too warm for a clean 2% victory lap.
- Goods disinflation did the heavy lifting in 2024–25. Now the question is services, which are slower to cool.
Why It’s Hard to Kill Inflation Quickly
- Wages vs. productivity: Wage growth has outpaced weak productivity. That squeezes margins and keeps service prices firm.
- Population & housing demand: Rapid population growth collides with low rental vacancy — rent inflation is sticky by design.
- Currency pass‑through: A softer CAD makes imports pricier (food, apparel, electronics), propping up core goods.
- Second‑round effects: After big price shocks, businesses tend to revise price lists less frequently downward than upward.
What Would Cool It Faster
- Productivity rebound: More output per worker eases cost pressure without layoffs.
- Supply response in housing: Faster builds, purpose‑built rentals, and updated zoning moderate rent inflation.
- Stable oil & stronger CAD: Takes pressure off transport and tradables.
- Labour market glide‑path: Slower hiring, not mass layoffs — cooling wages without breaking demand.
What to Watch (Q4 2025)
- BoC decision & MPR: Oct 29. Any hints on the “destination rate” after September’s cut to 2.50%.
- CPI prints: Headline vs. BoC core (trimmed/median). Watch shelter and services lines more than gasoline.
- Wages & vacancies: If wage growth decelerates and job vacancies ease further, services inflation should follow.
- CAD & oil: A firmer loonie and steady crude would help the disinflation story.
Investor/Household Playbook
- Mortgages: If core stays sticky, cuts proceed but carefully. Consider shorter fixed terms (1–2 yr) if you expect gradual easing, or variable if you can handle volatility.
- Bonds/REITs: Gradual disinflation + cautious cuts are constructive for duration and income plays, but don’t bank on a 2020‑style plunge in yields.
- Equities: Services/defensive names benefit from steady demand; rate‑sensitives improve as yields drift lower — but not in a straight line.
Bottom Line
Canada’s inflation fight is in the late innings, not the champagne inning. The Bank of Canada is easing policy, but sticky services and shelter argue for a measured path. Expect more cuts — just not all at once.
Marc has been involved in the Stock Market Media Industry for the last +5 years. After obtaining a college degree in engineering in France, he moved to Canada, where he created Money,eh?, a personal finance website.
