Bank of Canada Holds Policy Rate Steady

Today, the Bank of Canada once again held the policy rate steady at 2.25%. This is the bottom of the Bank’s estimate of the neutral overnight rate, where monetary policy is neither expansionary nor contractionary. With inflation hovering just under 2% and core inflation falling to 2.3%, the Governing Council sees the current overnight rate as appropriate, as the Bank looks through the inflationary effects of the war in Iran.

Economic activity has slowed amid the 19-day-old war, with widespread supply disruptions. “Since the outbreak of the conflict in the Middle East, global oil and natural gas prices have risen sharply, and this will boost global inflation in the near-term. In addition to energy supply disruptions, transportation bottlenecks stemming from the effective closure of the Strait of Hormuz could impact the supply of other commodities, such as fertilizer. Financial conditions have tightened from accommodative levels. Global bond yields have risen, equity market prices have declined, and credit spreads have widened. The Canada-US dollar exchange rate has remained relatively stable.”

The labour market in both Canada and the U.S. remains soft. ” Employment gains in the fourth quarter of 2025 were largely reversed in the first two months of 2026, and the unemployment rate rose to 6.7% in February. Looking through the volatility, recent data also suggest ongoing weakness in exports. It’s too early to assess the impact of the conflict in the Middle East on growth in Canada.”

Bottom Line

The Bank of Canada has shown its willingness to bolster the Canadian economy amid unprecedented trade uncertainty. At the same time, Canada is working hard to establish alternative trading partners. Even the vast Chinese market cannot replace the US in terms of proximity and cost-effectiveness, given the high transport costs. China has stepped up its purchases of Canadian oil to record levels. There is no single market the size of the US market to replace exports of steel and aluminum, but the prospects of rising exports to Europe and Asia will help to offset the impact of US tariffs.

The War in Iran, now in its third week, has caused a monumental oil price shock as the Strait of Hormuz is virtually shut down. Other commodity prices have also risen sharply, including natural gas, aluminum, and fertilizer prices. Consumers and businesses are tightening their belts amid uncertainty about the war’s duration.

Housing market activity has been in a long, slow downward trend. Nominal home prices have fallen 20% from their peak in the second quarter of 2022. When accounting for inflation, real home prices are down 30%, providing an enormous opportunity for first-time homebuyers.

In this environment, market-driven interest rates have risen. The 5-year bond yield is once again attempting to break through 3%. The 2-year bond at 2.72% is well above the 2.25% overnight rate, and the Canadian dollar is rising. Lenders have recently increased fixed mortgage rates, which will be more popular if people generally expect rates to rise.

The key to the outlook is the continuation of CUSMA. We will likely suffer several more months of uncertainty before we know the fate of the trade agreement. In the meantime, PM Carney will continue to encourage trade deals in non-US countries.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Housing Activity Fell Again in Early February–Depressed by Record Winter Storm–Before Picking Up in Late February

Today’s release of February housing data by the Canadian Real Estate Association (CREA) showed the housing market slowed further at the start of the month, reflecting the lingering effect of January’s snowstorm. Activity picked up in the second half of the month, a positive harbinger of a spring rebound.

The number of home sales recorded over Canadian MLS® Systems fell 1.3% on a month-over-month basis in February 2026, following a 5.8% decline in January.

“February saw a continuation of the quieter levels of activity recorded in January, although there was some indication things were starting to pick up speed toward the end of the month,” said Shaun Cathcart, CREA’s Senior Economist. “2026 is still ultimately expected to be a story about pent-up first-time buyer demand finally seeing a chance to enter the market. They’ve had to wait a long time for mortgage rates to find a bottom, but some will no doubt continue to hold off for a bottom in prices in some Ontario and British Columbia markets.”

New Listings

New listings fell back by 3.9% on a month-over-month basis in February 2026, erasing the jump recorded in January.

With new supply down by more than sales in February, the national sales-to-new listings ratio tightened to 47.6% compared to 46.4% in January. The long-term average for the national sales-to-new listings ratio is 54.8%, with readings roughly between 45% and 65% generally consistent with balanced housing market conditions.

“Housing market activity in February remained slow, particularly in the stretch of Ontario between Windsor and Toronto,” said Valérie Paquin, CREA Chair. “That said, the main event never really gets going until around April, so there’s still time to get ready to buy or sell this year.”

There were 151,850 properties listed for sale across all Canadian MLS® Systems at the end of February 2026, up 3.7% from a year earlier but 12.3% below the long-term average for that time of year.

There were five months of inventory on a national basis at the end of February 2026, unchanged from January and right in line with the long-term average for the measure. However, the national average masks wide regional differences, with no province currently at that level and only a handful of local markets close to it. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices

The National Composite MLS® Home Price Index (HPI) edged down 0.6% on a month-over-month basis in February, not a small decline but smaller than in January.

The non-seasonally adjusted National Composite MLS® HPI was down 4.8% compared to February 2025.

Bottom Line

The chart below shows that, just as Canada had a record housing rally during the pandemic, it is leading the housing correction. Canadian home prices are down 18% from their peak in the first quarter of 2022, when the Bank of Canada took the overnight rate down to a mere 25 bps. Currently, the policy rate is 2.25%, down from 5.0% at the peak of the tightening cycle. Back then, ultralow interest rates drove home prices to surge, particularly in smaller cities where remote workers fled to take advantage of a lower cost of living.

There is considerable pent-up demand among potential first-time buyers who will likely dip their toes in the market once winter passes. This year, we also see a record volume of refis and renewals, which will increase monthly mortgage payments and dampen household purchasing power. Affordability remains a challenge for first-time buyers, but mortgage rates and prices are considerably lower than a year ago. A reawakening of housing activity is likely as the spring market approaches, even with the war in Iran.

To be sure, the recent oil price shock has boosted market-driven interest rates as inflation fear mounts. Yesterday’s release of the CPI data shows that Canada’s inflation rate fell sharply before the war began. How much further inflation might rise will depend on the length of the war and the subsequent time it will take to reopen the Strait of Hormuz.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Inflation Falls More Than Expected to 1.8% in February

Canada’s inflation rate slowed by more than expected last month, before the oil shock of the Iran war. The yearly inflation rate fell to 1.8% in February from 2.3% in January, Statistics Canada reported on Monday.

Justin Trudeau introduced a temporary GST/HST break on a range of goods in January 2025, which expired in mid-Feb 2025. This raised the price level in February 2025, reducing inflation in today’s CPI reading. While the tax holiday initially drove annual headline inflation higher due to base effects, it’s now reversing and causing a deceleration that will likely be reflected in the March inflation data as well. This is very good news for the markets, particularly if the war with Iran comes to a relatively short conclusion.

Core inflation measures also eased by more than expected in February. The consumer price index excluding food and energy rose 2%, while the central bank’s trimmed and median measures of inflation both fell to 2.3%.

Shelter prices continued to decelerate last month, and were up just 1.5% from a year ago, the slowest pace in five years amid weak housing resales and smaller rent price increases.
Prices for food — a major sore spot for Canadian consumers — also rose at a slower rate. Yearly inflation for food purchased from stores was 4.1% in February, down from 4.8% the previous month. The deceleration was led by weaker price growth for frozen or fresh beef.
Still, grocery prices are up a cumulative 30.1% over the past five years.

Meanwhile, a more modest year-over-year deceleration in gasoline prices last month helped moderate the slowdown in headline inflation, with prices at the pump down 14.2% from 16.7% in January.

Gasoline prices were up 3.6% on a monthly basis, largely driven by higher oil prices ahead of the Middle East conflict and supply disruptions in some producer countries, Statcan said. Higher oil prices from the conflict in Iran are likely to show up in next month’s CPI data.

Bottom Line

It is very good news that the inflation backdrop softened last month, before the onslaught of the Iran war and the oil price shock. Some of the weaker base effects will be evident in the March CPI data as well, mitigating the impact of soaring energy and commodity prices on next month’s headline inflation number.

The Bank of Canada and the U.S. Federal Reserve will remain on the sidelines on Wednesday as a relatively quick end to the Iran war would keep a lid on inflation. President Trump has asked NATO countries to send warships to the Middle East to help open the Strait of Hormuz. The sooner the war ends, the sooner the oil price shock will dissipate. Given the uncertainty, the central banks will do best to keep their powder dry this time around, particularly given that labour markets in both countries have weakened substantially.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

This week I was invited to attend an exclusive session with SAGEN (formerly Genworth Canada) by one of my top Lenders, First National. The data they shared regarding the British Columbia housing market is eye-opening.

As we move into March 2026, the British Columbia real estate landscape is navigating a unique “economic crossroads.” To help you and your clients make sense of the current climate, I’ve distilled the most recent data from Sagen into five key pillars.

This is the “essential math” currently driving the BC housing market.

1. Economic Resilience Through Diversification

While trade tariffs and shifting U.S. relations are often in the headlines, BC’s economy has shown remarkable adaptability. Total exports now account for roughly 13% of Provincial GDP, but the destination of those goods has shifted. In just three years, reliance on U.S. exports dipped from 57.5% to 51.7%, while trade with Mainland China has grown to nearly 20%. This diversification serves as a vital buffer, providing the economic stability required to keep the housing market grounded.

2. The 30-Year Amortization “Bridge”

The 30-year amortization is no longer just an “option”—it has become the primary bridge for the BC middle class. Last year, 60% of all BC mortgage applications opted for a 30-year term. Most tellingly, 51% of those applicants would not have qualified for their home under a traditional 25-year schedule. This flexibility is the single most important tool currently keeping homeownership attainable for local families.

3. The High-Quality BC Borrower

Despite higher carrying costs, the BC borrower remains financially disciplined. The average Gross Debt Service (GDS) ratio sits at a healthy 29%, well within safety margins. Furthermore, our “New to Canada” segment—led by Surrey with 16% of total applications—is showing incredible strength, with 87% of these borrowers boasting credit scores over 700.

4. The $1.19M Reality

In British Columbia, the “million-dollar home” is no longer a luxury niche; it is the new benchmark for family housing. BC now accounts for 21% of all $1M+ mortgage applications in Canada, with the average purchase price in this segment hitting $1,190,000. To manage the monthly carry, 62% of these buyers are utilizing 30-year amortizations to balance their cash flow.

5. The Victoria & Urban Factor

The data highlights a significant “urban fortress” effect. In downtown Vancouver, for example, 100% of insured loans remain urban, supported by an average household income of $187,283. Meanwhile, in regions like Victoria and Surrey, we are seeing a “Bank of Mom and Dad” effect, with 23% of borrowers province-wide utilizing gifted down payments to secure their piece of the market.

The Bottom Line

We have officially shifted into a Buyer’s Market in many regions as inventory grows, yet prices remain stable over the long term. While we continue to watch federal immigration adjustments and trade tariffs, the combination of diversified income and high credit quality suggests a very solid foundation for the year ahead.

A mortgage is one of the largest financial commitments most people will make. Yet many borrowers focus only on interest rates instead of creating a long-term mortgage strategy. This article explains why homeowners and buyers across British Columbia work with Kimberly Coutts — the Mortgage Maven — when they want a thoughtful mortgage strategy that supports their financial goals.

1. Strategy Before the Mortgage Application

Many lenders focus only on getting a mortgage approved. Kimberly begins with a strategy-focused conversation to understand the client’s financial goals, lifestyle, and long-term plans. This approach ensures the mortgage is structured to support future plans rather than simply securing financing.

2. A Detailed Discovery Call to Understand Your Goals

Every strategy begins with a complimentary 30-minute discovery call. During this conversation, Kimberly reviews the client’s financial situation, risk tolerance, and comfort level with monthly payments. She also explains different mortgage structures and how they may affect the client over time.

3. Personalized Mortgage Solutions

No two clients have the same financial goals. Kimberly creates custom mortgage solutions that reflect each client’s income structure, long-term plans, and risk tolerance. This personalized approach allows borrowers to choose a mortgage that fits their life rather than adapting their life to a mortgage.

4. Guidance Beyond Interest Rates

Many borrowers focus only on finding the lowest interest rate. Kimberly believes the right mortgage product matters just as much as the rate itself. By analyzing amortization options, mortgage terms, and repayment strategies, she helps clients reduce their overall interest costs over time.

5. Access to a Wide Range of Lenders

A bank can only offer its own mortgage products. As a mortgage broker, Kimberly works with banks, mortgage finance companies, and alternative lenders. This wide network allows her to match clients with mortgage products that best support their financial strategy.

6. Clear Education Throughout the Process

Mortgage decisions often involve complex financial concepts. Kimberly focuses on explaining each option clearly so clients understand how different mortgage structures will affect their finances today and in the future.

7. Long-Term Mortgage Planning

A mortgage strategy should evolve as life changes. Kimberly maintains long-term relationships with her clients and provides annual mortgage checkups to ensure their mortgage continues to align with their financial goals and circumstances.

8. Proven Experience and Trusted Guidance

With more than 10 years of experience and over $100 million in funded mortgages, Kimberly has helped more than 225 families navigate important mortgage decisions. Her reputation for being professional, thorough, and efficient is reflected in 135 five-star Google reviews.

For buyers and homeowners who want more than just a mortgage approval, the right strategy makes all the difference. Kimberly Coutts — the Mortgage Maven — provides the expertise, planning, and personalized guidance needed to build a mortgage strategy that supports long-term financial success.

The Canadian Economy Shrinks by 0.6% in Q4, Owing to a Decline in Business Inventories

Statistics Canada reported this morning that the Canadian economy contracted by 0.6% at a seasonally adjusted annual rate, a significant reversal from the 2.4% expansion posted in Q3. The weaker growth rate reflected a steep decline in business inventories, which was partially offset by increases in household spending, exports, and government capital spending.

Economists surveyed by Bloomberg were expecting a 0.2% annualized decline over the last three months of 2025, while the Bank of Canada projected flat growth.

As US tariffs weighed on Canadian exports for much of the year, real GDP increased by 1.7% in 2025, marking the slowest annual growth since the economy contracted in 2020 owing to the COVID pandemic. Lower exports, particularly to the United States, were the main contributor to the slower rise in GDP in 2025.

A preliminary estimate suggests real GDP remained unchanged in January, after increasing by 0.2% in December, slightly stronger than economists’ estimate of 0.1%.

Exports rose 1.5% in the fourth quarter, after increasing 0.9% in the third quarter. The growth in the fourth quarter was led by higher exports of unwrought gold and of unwrought aluminum and aluminum alloys. Despite the increases in the latter half of the year, exports fell 1.7% in 2025, as shipments to the United States did not fully recover following the drop in the second quarter.

Imports edged up 0.3% in the fourth quarter, as higher imports of computers, clothing and footwear, and metal ores were largely offset by lower imports of pharmaceutical and medicinal products. For the year, imports were down 0.4% in 2025, driven by the 2.9% decline in the third quarter.

The better-than-expected Q3 gain will not be sustained in Q4, as Statistics Canada’s advance estimate for October showed industrial gross domestic product fell at a -0.3% monthly pace.

The current overnight policy rate of 2.25% remains stimulative, but until the likely outcome of trade negotiations with the US is resolved, Canada’s economy will be on shaky ground. It is unclear whether the Canada-US-Mexico free trade agreement will be extended beyond this year. If not, Canada will be in for a significant trade policy redo as it seeks replacement markets for its exports.

Household spending rose 0.4% in the fourth quarter after declining 0.2% in the third quarter. Higher expenditures on rent and financial services in the fourth quarter were partially offset by lower spending on new passenger vehicles and alcoholic beverages, as overall expenditures on goods declined for a second consecutive quarter.

On an annual basis, household final consumption expenditure was up 2.3% in 2025, keeping pace with the 2.2% growth in each of the previous two years. The rise in 2025 was led by increased household spending on financial services and rent.

Total capital investment rose 0.8% in the fourth quarter, driven by increased government investment in weapons systems. In contrast, business capital investment edged down 0.1% in the fourth quarter, as both residential and non-residential investment decreased. These declines were moderated by increased business investment in machinery and equipment, primarily computers (+19.6%) and intellectual property products, namely software (+0.7%).

Annually, total capital investment increased 1.4% in 2025, led by higher government investment in weapons systems (+45.9%) and engineering structures (+6.7%). Business investment rose 0.3% in 2025, as higher residential construction (+1.0%) and non-residential construction (+1.6%) were largely offset by weaker investment in machinery and equipment (-3.5%). The year 2025 was the third consecutive year in which government capital investment contributed more to GDP growth than business capital expenditures.

Business residential investment declined in the fourth quarter, led by decreased ownership transfer costs (-2.4%), a measure of resale market activity, and lower renovations (-1.3%). New construction (-0.5%) also declined in the fourth quarter due to lower work put in place for single- and apartment units.

Higher business residential investment in 2025 represented the first annual increase since 2021, as increased new construction (+1.0%) and renovations (+2.7%) more than offset the decline in ownership transfer costs (-3.4%).

Bottom Line

While weaker-than-expected Q4 GDP figures might normally trigger an easing move by the Bank of Canada, the Governing Council has made it very clear that it remains concerned about inflation. Tariff uncertainty is especially high now that the Supreme Court has found the Trump administration misused the International Emergency Economic Powers Act (IEEPA) to impose sweeping, open-ended tariffs — striking down the legal foundation for a central pillar of the administration’s trade strategy.

The decision removes the fastest way to impose broad country-level duties, but it does not end the tariff debate. Other statutory authorities remain in play, and businesses and trading partners are left to assess what comes next.

The ruling also lands amid sustained political pressure around affordability, which may shape how aggressively trade tools are redeployed. Even if tariff rates decline, businesses must now assess whether alternative authorities will be used to reimpose them. For the real economy, restoring stability may matter as much as reducing tariffs themselves.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Housing Activity Fell Again in January–Depressed by Record Winter Storm 

Today’s release of January housing data by the Canadian Real Estate Association (CREA) showed the housing market frozen solid by the record winter storms. Both home sales and prices continued their downward trend, but have yet to attract the beleaguered first-time homebuyer.

The number of home sales recorded over Canadian MLS® Systems fell 5.8% on a month-over-month basis in January 2026.

“The monthly decline in national home sales was driven primarily by less activity in the Greater Golden Horseshoe and Southwestern Ontario, suggesting that the story was probably more about a historic winter storm than a downshift in demand,” said Shaun Cathcart, CREA’s Senior Economist. “Notwithstanding the chilly start to the year, we continue to expect 2026 will ultimately be defined by pent-up demand from first-time buyers finally seeing a chance to enter the market.”

New Listings

Similar to what happened in January 2025, new supply increased month over month in January 2026, rising 7.3% as sellers appeared eager to start the year.

The burst of new supply was driven by about two-thirds of local markets, and led by Montreal, Quebec City, Calgary, Greater Vancouver, and Victoria. Meanwhile, Central and Southwestern Ontario were far less prominent and, in many cases, recorded declines. This reinforces the view that winter weather was a primary factor in January in those regions, as it appears to have suppressed both demand and supply.

With a rare combination of a sizeable increase in new listings and a sharp slowdown in sales in January, the national sales-to-new listings ratio dropped to 45% compared to 51.3% at the end of 2025. The long-term average for the national sales-to-new-listings ratio is 54.8%, with readings generally between 45% and 65%, consistent with balanced housing market conditions.

There were 140,680 properties listed for sale on all Canadian MLS® Systems at the end of January 2026, up 4.5% from a year earlier but 11.4% below the long-term average for that time of year.

There were 4.9 months of inventory nationally at the end of January 2026, up from 4.6 months at the end of December. The long-term average for this measure of market balance is five months of inventory. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

In line with more supply and less demand in January 2026, the National Composite MLS® Home Price Index (HPI) fell by 0.9% on a month-over-month basis.

The non-seasonally adjusted National Composite MLS® HPI was down 4.9% compared to January 2025.

Regionally, prices remain down year over year in British Columbia, Alberta, and Ontario, offsetting gains in other provinces. An analysis by city shows the largest year-over-year declines dip into double digits in Hamilton-Burlington and Oakville-Milton, contrasted with double-digit gains in Sudbury, Quebec City, and St. John’s, Newfoundland.

Home Prices

Regionally, prices remain down year over year in British Columbia, Alberta, and Ontario, offsetting gains in other provinces. An analysis by city shows the largest year-over-year declines dip into double digits in Hamilton-Burlington and Oakville-Milton, contrasted with double-digit gains in Sudbury, Quebec City, and St. John’s, Newfoundland.

Bottom Line

Today’s data end a year that saw house prices drift lower despite falling interest rates, as a simmering trade war with Canada’s largest trading partner caused higher unemployment and considerable job uncertainty. Although U.S. tariffs affect only a limited volume of Canadian goods, and the economy hasn’t tipped into a recession, the unpredictability of President Donald Trump’s trade policy has stoked economic insecurity.

In some regions, the price decline has now wiped out a sizable share of the gains homeowners saw during the torrid Covid market from 2020 to 2022, when overnight interest rates were reduced to a record low of 25 basis points. Back then, ultralow interest rates drove home prices to surge, particularly in smaller cities where remote workers fled to take advantage of a lower cost of living.

There is considerable pent-up demand among potential first-time buyers who will likely dip their toes in the market once winter passes. This year, we also see a record volume of refis and renewals, which will increase monthly mortgage payments and dampen household purchasing power. Affordability remains a challenge for first-time buyers, but mortgage rates and prices are considerably below year-ago levels. A reawakening of housing activity is likely as the spring market approaches.

With inflation well-behaved, the Bank of Canada has the flexibility to cut the overnight rate further if the economy falters.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

CPI Inflation in Canada Fell A Tick to 2.3% Y/Y in January on Gasoline Price Decline

The Consumer Price Index (CPI) rose 2.3% on a year-over-year basis in January, following a 2.4% increase in December.

The gasoline price index was the largest contributor to the deceleration in headline inflation, with a larger decline in January than in December. Excluding gasoline, the CPI rose 3.0% in January, matching the December increase.

Indexes with year-over-year movements impacted by the temporary GST/HST break in January 2025 continued to put upward pressure on the year-over-year all-items increase in January 2026. Among the affected indexes, the CPI remained most affected by the acceleration in prices for restaurant meals, and to a lesser extent, by prices for alcoholic beverages, toys, and children’s clothing.

The core inflation measures decelerated further in January, with the BoC’s two favourite measures easing to their lowest levels in a year (see chart below).

Prices at the pump fell 16.7% year over year in January, after a 13.8% drop in December. The larger year-over-year decline was mainly due to a base-year effect. The index rose 0.5% month over month in January 2026, compared with a 4.0% increase in January 2025, when crude oil prices rose. Additionally, the partial reintroduction of the provincial gas tax in Manitoba in January 2025 is no longer impacting the 12-month movement.

For food purchased from restaurants, prices were higher in January 2026 (+12.3%) than in January 2025, when prices were lower due to the GST/HST break.

Similarly, prices rose on a year-over-year basis for other previously tax-exempt goods in January 2026, including alcoholic beverages purchased from stores (+7.9%), alcoholic beverages served in licensed establishments (+9.0%), toys, games (excluding video games) and hobby supplies (+8.7%) and children’s clothing (+6.3%).

Year over year, prices for cellular services decelerated in January (+4.9%) compared with December (+14.6%), reflecting a base-year effect after six consecutive months of upward pressure. On a month-over-month basis, prices declined in January 2026 (-0.8%) after increasing in January 2025 (+8.3%).

Prices for food purchased from stores rose 4.8% year over year in January, following a 5.0% increase in December. The slower price growth was mainly driven by a decline in fresh fruit prices (-3.1%) in January, after a 4.5% increase in December. Amid generally strong or stable harvests in producer regions, the largest contributors to downward pressure on prices were berries, oranges and melons.

Since early 2024, growth in shelter costs has slowed year over year. In January 2026, prices continued to decelerate, rising 1.7%. This is the first time in nearly five years that year-over-year shelter price growth has fallen below 2.0%. Slower growth in rents and mortgage interest costs drove the deceleration.

Rent prices rose at a slower pace year over year in January (+4.3%) than in December (+4.9%). Rent prices decelerated the most in Prince Edward Island (+0.2%) and Saskatchewan (+1.8%).

The mortgage interest cost index rose 1.2% year over year in January, following a 1.7% increase in December. This index has been decelerating since September 2023.

In January, prices rose at a slower pace in nine provinces than in December. Year-over-year price growth accelerated in British Columbia due to a base-year effect, as hotel prices declined on a monthly basis in January 2025 after increasing in December 2024, coinciding with a series of high-profile concerts in Vancouver.

Bottom Line

Although inflation pressures are dissipating, this report alone will not trigger a Bank of Canada rate cut when the Bank meets again on March 18. It is unlikely to move the Bank of Canada from the sidelines as it continues to evaluate how US tariffs are affecting the economy. The data suggest that Americans are paying the bulk of the tariffs.

The Bank of Canada’s preferred measures of core inflation decelerated, with the median gauge edging down to 2.5% from 2.6%, and trim falling to 2.4% from 2.7%.

What the Canadian economy needs is greater clarity on the future of the Canada-Mexico-United States (CUSMA) trade agreement. Reduced uncertainty is the key ingredient required for a rebound in housing activity, particularly in the regions of Ontario and Quebec hardest hit by the tariffs.

The central bank kept its policy rate at 2.25% last month for the second consecutive meeting and has signalled an aversion to juicing demand at this time. In a speech earlier this month, Governor Tiff Macklem warned that cutting interest rates amid a supply-side shock could stoke inflation.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Jobs Growth Slowed Markedly in January as the Unemployment Rate Fell Sharply to 6.5%

Today’s Canadian Labour Force Survey for January was weaker than expected. Employment declined by 24,800 (-0.1%), and the employment rate decreased 0.1 percentage points to 60.8%. This followed only a small gain in December and was the first decline in the employment rate since August 2025.

In January, a decrease in part-time employment (-70,000; -1.8%) was partly offset by a gain in full-time work (+45,000; +0.3%). Compared with 12 months earlier, overall employment was up by 134,000 (+0.6%), driven by gains in full-time work (+149,000; +0.9%).

The number of private sector employees fell by 52,000 (-0.4%) in January, partly offsetting a net increase of 128,000 (+0.9%) in the last three months of 2025. There was little change in the number of public sector employees (+13,000; +0.3%) and self-employed workers (+14,000; +0.5%) in January.

The jobless rate fell by 0,3 percentage points to 6.5% in January, driven by a decline in the number of people searching for work. The unemployment rate in January was the lowest since September 2024, down 0.6 percentage points from the recent high of 7.1% recorded in August and September 2025.

The labour force participation rate—the proportion of the population aged 15 and older who were employed or looking for work—decreased 0.4 percentage points to 65.0% in January, following an increase of 0.2 percentage points in December. The decline in January was concentrated in Ontario, the hub of the auto sector, manufacturing generally, and steel production. Recent data also show that the number of entry-level positions has fallen sharply, likely due to artificial intelligence replacing these positions.

The unemployment rate fell across most major demographic groups in January, largely reflecting declines in the number of job searchers.

Unemployment rate by age group, January 2026

Manufacturing jobs were hard hit by the tariffs and trade uncertainty. 

The number of people working in manufacturing fell by 28,000 (-1.5%) in January, bringing employment down to levels last observed in August 2025. The decline in January was concentrated in Ontario. On a year-over-year basis, overall employment in manufacturing was down 51,000 (-2.7%).

Employment change by industry, January 2026

There were also fewer workers in educational services (-24,000; -1.5%) and public administration (-10,000; -0.8%) in January. Employment in both industries was little changed year over year.

On the other hand, employment increased in information, culture and recreation (+17,000; +2.0%) in January, continuing an upward trend that began in September 2025. On a year-over-year basis, employment in this industry was up 30,000 (+3.6%) in January.

Employment also rose in business, building and other support services (+14,000; +2.1%) in January, the first increase since October 2024. Employment in this industry had previously followed a downward trend through most of 2025. Compared with 12 months earlier, employment in business, building and other support services was down 38,000 (-5.3%) in January.

Bottom Line

The Bank of Canada has reiterated that its primary mandate is price stability, effectively leaving the task of closing the output gap to fiscal authorities. Fiscal support delivered through large capital-spending projects will be implemented too slowly to materially offset near-term weakness in activity. If layoffs persist at their recent pace and the United States were to withdraw from the Canada‑US‑Mexico Agreement, the case for an additional round of monetary easing would strengthen markedly.

Absent that downside scenario, the more plausible path is a slow and limited normalization of policy. Market pricing currently anticipates that the next move by the Bank of Canada will be to raise the overnight policy rate, but this is unlikely until 2027. If labour force weakness and higher mortgage costs associated with this year’s huge volume of mortgage renewals, in combination with AI-induced job losses, weaken the economy, the Bank of Canada might be willing to cut the overnight policy rate later this year. Uncertainty has already markedly weakened the housing market, despite the reduction in home prices and mortgage rates over the past year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

I just returned from a mortgage conference with some of the best in the industry, and while most people were talking about whether we’d see another rate reduction by the Bank of Canada or stay the course (including me), we had experts share a “thought experiment” that could change the game for an entire generation: The 50-year amortization.

I know what you’re thinking: “That’s way too much interest!” But let’s look at the reality of the Canadian market in 2026.

The Barrier to Entry is a Wall The average first-time homebuyer is now 40 years old. In our major cities, nearly 7 out of 10 buyers require a “gift” from their parents to even qualify—often to the tune of $100k to $300k. homeownership is becoming a “members only” club for those with generational wealth.

Rent is 100% Interest The biggest objection to a 50-year mortgage is the interest cost over time. But we rarely apply that same logic to the rental market. If you rent for 50 years, you have paid 100% interest and own 0% of the asset.

A 50-year mortgage isn’t a life sentence; it’s an on-ramp. It provides the lowest possible monthly payment during the years when life is most expensive—when you’re starting a career or raising a young family.

The Forced Savings Advantage We are living in a “K-shaped” economy. Homeowners are statistically 6 to 7 times wealthier than renters because a mortgage is a forced savings vehicle.

• Equity as a Safety Net: Homeowners can tap into equity to consolidate high-interest debt. Renters are stuck with high-cost credit cards and no leverage.
• Tax Efficiency: The principal residence exemption remains the best tax-free wealth builder in Canada.

A New Tool for a New Reality Back in the 80s, our parents dealt with 18% interest rates, but their homes cost 3x their annual salary. Today, homes are 10x our salary. The old rules don’t work for the new reality.

A 50-year amortization would allow young professionals to get into the market at 25 instead of 45. They could make lump-sum payments as their income grows, increase their frequency, or re-amortize at renewal.

The goal isn’t to stay in debt forever—it’s to get in the door. Because you can’t build a legacy on a rental receipt.

What’s your take? Is it time we stop letting “optics” get in the way of access? I’d love to hear your thoughts.