Residential Market Commentary - Inflation is #1 Worry

The latest readings of business and consumer sentiment by the Bank of Canada, show inflation is a top concern.   

The Bank’s Business Outlook Survey and its Survey of Consumer Expectations, for the second quarter of 2026, show both groups expect inflation to top 3.0% over the next 12 months.  Concerns are centered on rising energy costs, fueled by the war in the Middle East, and on-going uncertainty about trade with the U.S. 

Businesses point to higher fuel prices as a key driver of inflation while consumers tend to see American trade tariffs as the main culprit.  However, an increased number of consumers did mention oil prices as a concern in the Q2 report, compared to the Q1 report. 

Consumers are responding by reducing their spending.  Higher gasoline prices have households cutting travel, dining and major purchases.  The consumers who have the greatest worries about inflation say they are shifting to cheaper essentials, trimming discretionary spending and driving less. 

Interestingly, attitudes about job security appear to have improved among consumers.  Even those whose work is highly dependent on trade with the U.S. are more optimistic.  The biggest concern is the effect artificial intelligence will have on the job market. 

Canada’s unemployment rate dipped to 6.5% with the addition of 18,000 – mostly part-time – jobs in June. 

Most market watchers believe current inflation indicators and economic uncertainty will see the Bank of Canada hold its Policy Rate at 2.25% at this week’s setting. 

- First National