Nov. 17, 2025 - Inflation Falls!
Inflation statistics for the month of October was down to 2.20% year over year, compared with 2.40% the previous month.
The price of food items actually fell from the previous month, which has not happened for a long time and will mean some relief for the ever-growing number of Canadian families living paycheque to paycheque.
A large contributor to the fall in inflation was the price of gasoline which fell close to 5% from the previous month.
Most other items, including the price of shelter, rose by fairly insignificant amounts, creating a landscape of price stabilization in Canada.
Despite the recent jobs data, which showed Canada added jobs to the economy (although most were part-time and likely attributable to the Blue Jays world series final) the fall in inflation paves the way for another cut by the Bank of Canada in their December meeting.
Canadian Federal Budget and Economic Outlook for Interest Rates
The Federal Budget is scheduled to be released Tuesday, November 4, which may provide a clearer picture of where interest rates are heading in the long term.
Interest Rates and Inflation
Despite inflation rising to 2.40% in September, it remains below the Bank of Canada's maximum comfort range of 3.00%. This allowed the Bank of Canada to lower the key interest rate on October 29, bringing down variable rate mortgages. Aside from the possibility of rising inflation, the current state of the Canadian economy does not point to economic expansion, which means rates should continue to fall going forward.
Unemployment Crisis
Unemployment in Canada is staggeringly high. Overall unemployment stands at 7.10%, while Canada's largest city, Toronto, is experiencing 8.90% unemployment. These figures reflect a labor market under significant strain.
Economic Contraction
GDP statistics show that Canada's economy is shrinking. The latest data reveals that GDP contracted by 0.30% in August—lower than it had been five months previously. This trend could continue as business losses from tariffs, layoffs, and high unemployment further deteriorate the Canadian economy.
CIBC Deputy Chief Economist Benjamin Tal recently addressed an audience of Canadian mortgage professionals, stating: "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."
The Affordability Crisis
Rising prices for food and shelter remain a major concern for Canadian households. Over the past five years, cumulative inflation on both food and shelter has been approximately 27%, contributing to some of the higher interest rates seen in recent years. Meanwhile, wages have increased by an average of only 5% during the same period. This includes the roughly 16% wage growth seen in public administration, education, and health care. As a result, the private sector—which makes up about 78% of Canada's workforce—is being severely strained at an unsustainable rate.
Tuesday's budget must address these issues because the current state of the private sector workforce has reached a crisis point. The private sector is, after all, the source of tax revenue for government wages and spending. Unless significant efforts are made to lower food and housing costs—such as eliminating taxes on food and reducing interest rates to bring down shelter expenses—the outlook for Canada's economy could be severely detrimental.
Why Canada's Private Sector Is Underperforming
The root causes of Canada's economic decline relative to the United States include a bloated bureaucracy, lack of competition in the banking sector, regulations limiting foreign ownership and investment, over-regulation in real estate, and high levels of unionization.
Canada's workforce is more than twice as unionized as that of the United States. In a perfect world, all industries could be unionized and still thrive. However, a key principle of modern economics states that for a union to exist sustainably, the employer must be able to fail if union demands exceed profitability—otherwise, equilibrium cannot exist. The most powerful unions in Canada operate within the public sector, an employer that cannot fail because it is not required to be profitable. This is why the Carney government has required government agencies to reduce their budgets, and we may see further tightening in Tuesday's budget.
Based on 2024 statistics, Canada's GDP per capita was approximately 63.26% of that of the U.S. Compared to individual states, this places Canada between the two poorest states: Mississippi and Arkansas.
U.S. Economic Outlook and Impact on Canada
Job growth in the U.S., despite high GDP, has essentially stalled. The growth of the U.S. economy is now almost completely dependent on investment in large AI companies. The success of these companies is displacing many American workers as their jobs are replaced by AI, revealing the negative effects AI will have on the job market. Should the AI investment bubble burst, it could lead to economic collapse.
A declining U.S. economy would cause treasury yields to fall, which would put downward pressure on Government of Canada bond yields and subsequently cause Canadian fixed interest rates to fall.
Oct. 29, 2025 -- Bank of Canada Lowers Key Rate by 0.25%, Bringing Down Variable Rates.
The Bank of Canada lowered the overnight rate by 0.25% today as expected, which will bring down rates by 0.25% for variable mortgage rates.
The Bank stated that “While the global economy has been resilient to the historic rise in US tariffs, the impact is becoming more evident. Trade relationships are being reconfigured, and ongoing trade tensions are dampening investment in many countries. In the MPR projection, the global economy slows from about 3¼% in 2025 to about 3% in 2026 and 2027”.
The Bank cited other reasons for the cut, including an economic contraction of 1.60% in the second quarter of 2025, uncertainty over trade with the U.S. with a drop in Canadian exports, specifically in autos, steel, aluminum, and lumber (all items which are being heavily tariffed by the U.S.), and that economic growth in Canada is expected to be low in the second quarter.
Other items which negatively affect the Canadian economy include a 7.10% unemployment rate and slow wage growth. The Bank cited that slower population growth means that less jobs are required to keep the employment rate steady, so unemployment should not continue to grow at a fast pace.
Although inflation has been below the 3.00% upper bound of the Bank of Canada’s comfort zone, the Bank does have concerns about rising inflation, which they will monitor closely when assessing their rate policy going forward.
The Bank did note that economic growth in the U.S. has been strong due to the “boom” in AI investment, however, in the U.S., employment growth has slowed and tariffs have pushed up U.S. consumer prices, which points towards a case of the rich getting richer, and the poor getting poorer, which is an ongoing theme in the modern global economy.
Overall, the future of the “Canadian economy”, stated the Bank, “faces a difficult transition. The structural damage caused by the trade conflict reduces the capacity of the economy and adds costs. This limits the role that monetary policy can play to boost demand while maintaining low inflation”.
Government of Canada bond yields (the basis for fixed mortgage rates) actually rose slightly after the announcement, suggesting traders may have anticipated the possibility of a larger reduction than 0.25%, however the slight rise in yields pales in comparison to the large decrease we have seen in the yields since mid-July.
OCT 13, 2025 - cANADA ADDS 60,000 JOBS IN SEPTEMBER
On Friday Oct 10, Statistics Canada revealed that Canada had added approximately 60,000 jobs in the month of September, which came above expectations. Approximately 28,000 of these jobs were in the manufacturing sector which is refreshing considering it is a tariff impacted industry.
An increase in employment most often causes Government of Canada bond yields (the basis for fixed mortgage rates in Canada) to rise, however, on the date of the announcements, the bond yields were down by the end of the day. Why did this happen?
The reason the yields finish down for the day had to do with a sudden drop in the price of oil which was caused by the U.S. President’s announcement that he intended to place a further 100% tariff on Chinese exports. Such a move would lead to less demand for oil due to a decline in Chinese manufacturing and shipping, as well as increased prices for U.S. consumers which would reduce American spending power, slowing global manufacturing, shipping, and U.S. leisure purchases such as travel and the purchase of non-essential items.
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Oct 1, 2025 - Bond yields continue to fall
Government of Canada bond yields (the basis for fixed mortgage rates in Canada) continued to fall over the month of September. The global economy has continued to slow and Canada's GDP is well below that of U.S., which combined with further job losses expected due tariffs, the falling price of oil, and consistent low inflation, create the perfect environment for falling fixed rates.
The Bank of Canada had lowered the key interest rate by 0.25% in September, and another decrease is expected on October 29 at the next Bank meeting, which will bring variable rates down further.
As you can see in the above chart of the 5 year Government of Canada bond yield, the yields are continuing to fall within the Descending Trending Tunnel.
Although there have been 3 bounces off the support line, located at the bottom of the tunnel, it would seem unlikely that the yields will reach the support line any time soon during the current economic cycle, unless the global economy fares worse than expected. The reason for this has to do with the price of oil.
The price of Crude Oil has fallen approximately 52% since it's peak price during the pandemic. The fall has been steady, however there will come a point where the fall in the price will slow.
Oil prices are generally the driving factor of inflation due to the connection to shipping and manufacturing costs. You can see the correlation between bond yields and the price of oil in the second chart above.
What will determine how low oil will fall before it settles, will be global demand based on economic the growth of the world economy.
Overall, the global economy, and Canada’s economy, are not showing any signs of expansion, so the projection remains for rates to fall, with most forecasts anticipating a slowdown through to the end of 2026.
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Sept 17, 2025 - Bank of Canada Lowers Key Interest Rate
The Bank of Canada lowered it’s key interest rate this morning by 25 basis points (0.25%), bringing variable rate mortgages down 25 basis points as well.
The drop in the overnight rate was broadly expected since CPI inflation came in at 1.90% in August, coming in much lower than the Bank of Canada's maximum inflation comfort level of 3.00%.
Inflation in Canada has remained stable despite counter tariffs placed on certain U.S. imports.
Overall the Bank cited that fact that both global and domestic economic growth are slowing, and global oil prices are where the Bank projected in their July Monetary Policy Report. Oil prices, often being the largest contributor to inflation levels due to it's impact on manufacturing and shipping costs, most often fall during a slowing global economy, which indicates that inflation is expected to remain stable, or fall going forward.
Canada's GDP fell by 1.60% i the second quarter of 2025, indicating that our economy is shrinking rather than growing, which is largely due to slowing demand of Canadian exports to the U.S.. Exports fell by a whopping 27% in the second quarter of 2025, and business investment in Canada also declined.
Although consumer spending remained strong in the second quarter of 2025, the Bank expects this to slow in the months ahead, citing weakness in the labour market which is likely to impact household spending.
Employment growth in Canada weakened over the past 2 months, most significantly in sectors related to trade, but also in non-trade related sectors.
Overall it is my opinion that the Bank of Canada did exactly what was necessary in this meeting, and although I believe that more cuts are needed based on the projections, I understand the Bank's cautious approach during a time of macro political uncertainty, specifically in regard to farcical and disingenuous behaviour of the Trump administration.
The Federal Reserve also lowered their key interest rate by 0.25%, which was expected as well, causing both bond markets, and stock markets, do fluctuate radically in the afternoon as investors and traders took profits and stop losses.
Overall, government bonds should normalize by next week, and the fall in Government of Canada bond yields (the basis for fixed mortgage rates) should continue their downward path.
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Sept 1, 2025 -- Shrinking Economy = Falling Rates
Canada’s economy is shrinking quickly at the same time that the U.S. economy is expanding at a fairly substantial rate.
Canada’s economy contracted by 1.60% in the second quarter of 2025, mostly due to the impact tariffs have had on Canadian exports to the U.S.. Exports declined by 7.50% in the second quarter, which represents the largest drop in 5 years. 5 years ago, Canada’s exports fell heavily due to supply chain issues caused by pandemic lockdowns. This current contraction is caused by the impact of tariffs, combined with a less than stellar Canadian economy which has been underperforming for the past 10 years compared with the U.S. economy.
The contraction is likely to get worse now that the U.S. has removed the de minimis exemption which allowed Americans to import goods valued under $800 free of any tariffs. This exemption allowed consumers to purchase smaller priced goods as they had in the past, without any increase to the cost of the items. The removal of this exemption could drastically reduce Canadian exports at the small consumer level. Total U.S. global imports that fell under the de minimis exemption for 2024 was estimated to be valued at approximately $54 billion dollars, and with Canada having the largest share of trade with the U.S., Canada's share of this total would be quite large.
Some Canadian businesses may choose to absorb tariffs placed on exports under $800, which leads to reduced profits, businesses shutting down, and negatively impact Canadian GDP while the U.S. economy will continue to expand at a higher rate…. Exactly what the current U.S. administration was hoping for.
Fortunately U.S. tariffs are only being placed on non-CUSMA compliant items, so items affected by the removal of the de minimis exemption are mostly limited to items which have high non-north American content, such as electronics, mechanical products, and other items that source most of the parts from overseas.
The major impact of tariffs still fall on our steel, aluminum, and copper exports to the U.S., which currently are tariffed at a rate of 50%. Prior to the tariffs, exports of steel, aluminum, and copper, amounted to approximately 1.3% of Canada’s GDP. Although exports of these metals is actually somewhat lower on the list of contributors to overall Canadian GDP, it could enough to tip the economy into a prolonged recession.
As long as Canada’s rate of inflation remains at it’s current low level, we can expect fixed rates to fall, and the Bank of Canada to lower the key interest rate in September.