Inflation in Canada and What it Means for Newcomers

For newcomers and international students arriving in record numbers, it’s helpful to understand how the current inflation rate in Canada can affect how much you pay for housing, groceries, transportation, and other expenses. Staying informed about inflation can help you anticipate changes and manage your finances accordingly. Stay up-to-date with recent changes so you can manage the cost of living in Canada.

Inflation in Canada fell below 3 percent for the second consecutive month. In February 2024, the country’s inflation rate peaked at 2.8 percent. That’s a trend in the right direction, prompting many (including newcomers and international students) to ask, “When will the Bank of Canada (BoC) initiate interest rate cuts?” 

The current BoC rate is paused at 5 percent.

Tiff Macklem, the BoC governor, has held fast to the theory that interest rates must hit the bank’s target of 2 percent and remain there before cuts begin.

Rapid population growth continues

Still, January’s 2.9 percent and February’s 2.8 percent have generated hope that cuts will begin and lower borrowing costs, the price of commodity goods, and mortgages. 

The latest data from Statistics Canada show that the unemployment rate in February was 5.8 percent, compared to 5.7 percent in January.

Year-over-year, Canada’s population grew by 1,031,200 people, but employment rose by only 368,000 jobs.

Population growth in February and January 2024 made them the strongest back-to-back months for population growth in Canadian history.

Related Posts:

Renting in Canada | What Newcomers Need to Know

How Much Money Will I Need to Move to Canada?

Banking and Finances | Financial First Steps in Canada

The Canadian government is on track to settle (or exceed) 485,000 newcomers in 2024 and 500,000 in 2025.

According to Statistics Canada, out of the 1.27 million immigrants added to the population in 2023, 471,800 were permanent immigrants, and 804,900 were non-permanent residents (NPRs).

Gasoline prices had little impact

StatCan also highlights that 2.66 million NPRs lived in Canada on January 1, 2024 (including 2.33 million permit holders and their family members and 299,000 asylum claimants with or without work or study permits).

As for February’s inflation numbers, most economists expected it to be 3.1%. Some of the factors affecting the February rate include:

• Internet service prices decreased by 3.2 percent
• Cellphone plans decreased by 26.5 percent from a year earlier for Canadians who subscribed to a cellphone plan
• Clothing and footwear prices fell by 4.4 percent and 5.3 percent, respectively.
• The price of food purchased from grocery stores rose by 2.4 percent in February on a 12-month basis, down from 3.4 percent in January. (Grocery inflation peaked at more than 11 percent in 2022 and 2023).

• Gasoline prices jumped an average of 4 percent in February from January (that’s why economists forecast a higher rate of overall inflation).

• Housing costs in Canada continue to drive inflation. Mortgage interest (up 26.3 percent) is the biggest factor behind it.

According to the latest report from Rentals.ca, asking rents for all residential property types in Canada averaged $2,193 in February. That’s an increase of 10.5 percent year over year and the fastest annual growth rate since September 2023. 

In February, rents nationally on all property types decreased marginally by 0.1 percent month-over-month.

A one-bedroom apartment in Vancouver and Toronto (popular “Gateway” cities for immigrants) rents for $2,653 and $2,495 monthly, respectively. 

Immigration a factor behind rent inflation in Canada

“Rent continues to soar,” says Derek Holt, Scotiabank‘s Vice President and Head of Capital Markets Economics. “Likewise for shelter costs that account for about one-quarter of the CPI basket excluding mortgage interest. And no, the BoC cannot just ignore one quarter of the basket.”

The impact of the rapid increase in immigration on rents across Canada has been substantial. 

As Wolf Richter of WolfStreet.com points out, “the Bank of Canada, in discussing its interest-rate-policy decisions and inflation, has been pointing at the surge of immigrants as the source of rent inflation, which has caused services Consumer Price Index (CPI) to be stickier and higher than hoped for, even as the homeownership CPI has started to cool a little.”

“New immigrants,” said Richter, “largely rent homes when they first arrive, rather than purchase homes, and so home prices have been pressured down by higher mortgage rates that are not compatible with the crazy-high prices in many markets.’

The Bank of Canada is scheduled to meet on April 10 to discuss interest rates. Economists forecast that the rate will remain at 5 percent for now. 

“The BoC will require more than just a lousy couple of months of soft inflation data before deciding to pull the trigger on a rate cut and especially on meaningful rate cuts in a plural sense,” observed Holt. 

Will rates begin to fall this summer?

Holt pointed out that “rent continues to soar. Likewise for shelter costs that account for about one-quarter of the CPI basket excluding mortgage interest. And no, the BoC cannot just ignore one quarter of the basket.”

For newcomers and students arriving in Canada this year, the consensus prediction among economists is that rates will begin to fall this summer, but nothing is certain. 

Holt says dropping rates too soon “would be a high-stakes gamble that could easily backfire and add another black mark against Macklem’s leadership” of the Bank of Canada.

Commenting on the recently released Bank of Canada’s surveys of business and consumer expectations, Holt said it’s obvious that Canadian consumers don’t believe in the bank’s 2 percent inflation target.

“Consumers signalled they expect inflation to be 3.1 percent five years out which is up by half a percentage point since the last quarterly survey,” said Holt. 

“We all know that nobody can forecast where inflation will be five years from now, but the signal is that consumers don’t believe in the BoC’s 2 percent inflation target.”

Steve Tustin is the Editor for Rentals for Newcomers and contributing editor for Prepare for Canada. He is the former managing editor of Storeys.com and a former senior editor at both the Globe and Mail and the Toronto Star.

*Prepare for Canada did not use AI-generated content to write this story; sources are cited and credited where possible.

© Prepare for  2024