Residential Market Commentary - Sagging consumer sentiment

The Bank of Canada’s latest look at consumer sentiment suggests conditions are improving, but spirits remain low. 

The central bank’s most recent quarterly Survey of Consumer Expectations shows those expectations were subdued in the fourth quarter of 2025.  Consumers remain concerned about high prices and economic uncertainty.  Much of that is tied to tariffs and the erratic trade policies of the United States.  Half of those surveyed think the worst effects on the economy or inflation are still to come. 

Headline inflation, as measured by the Consumer Price Index, did increase in December climbing to an annual rate of 2.4%, up from 2.2% in November.  Analysts say the increase was largely due to the statistical effects of last year’s federal GST holiday no longer influencing the calculations. 

Three high profile components of inflation have been cooling.  Homeowner replacement costs, which shot up in 2021, have been deflationary for the past two years.  Mortgage interest inflation is down from record highs, and rental inflation is slowing. 

Still, consumers say higher costs at the supermarket are squeezing their finances.  Grocery inflation is a very obvious pain point for many shoppers.  It rose 3.5% compared to 2.2% in 2024.  Coffee and beef were the big contributors, with fresh and frozen beef prices rising by 13.5%. 

The Bank of Canada survey suggests many Canadian consumers continue to see trade turmoil and tariffs as the key drivers of inflation.  Three-quarters of those consumers believe that will persist for several more years.