CIBC released a report on Tuesday that forecasts a gradual easing of the financial pressures that have limited Canadian consumer spending since 2022. Senior economist Katherine Judge said the bank views 2026 as a transition year and expects many of the current constraints to fade by 2027, creating room for higher discretionary outlays.
Key factors behind the outlook
The analysis, co‑authored with senior economist Andrew Grantham, points to three main drivers of relief. First, inflation that has kept food and other essentials expensive is expected to moderate as global supply chains stabilise. Second, gas prices, which have surged following the Iran conflict, are projected to ease, especially for low income households that have felt the brunt of the spike. Third, the wave of mortgage renewals at higher rates that began after the pandemic is likely to subside as the Bank of Canada's policy rate settles.
"Elevated gasoline prices are squeezing lower income households in particular," Judge noted. She added that recent federal income‑support measures, such as the Canada Groceries and Essentials Benefit, are already offsetting some of the strain and that any further easing of fuel costs will free up additional spending power in 2027.
Mortgage market dynamics
Mortgage affordability remains a headline concern. A separate survey by Rates.ca found that nearly half of respondents said mortgage payments now consume more than half of their paycheques. The CIBC report, however, expects the pressure from higher mortgage rates to ease as the Bank of Canada's research shows modest rate increases after the second half of 2027. Variable‑rate mortgages, which have become more common, are also expected to face only a modest 0.5 percentage‑point rise in the overnight rate next year, according to the report.
Judge said the "squeeze" from the post pandemic mortgage renewal wave will diminish, allowing households to allocate more of their income to leisure, entertainment and other non‑essential items.
Broader economic context
Trade negotiations with the United States are another variable. If talks progress without new tariff escalations, businesses could gain the certainty needed to expand hiring. Canada's unemployment rate fell to 6.4 percent in July, the third consecutive monthly decline, according to Statistics Canada. Judge expects the rate to dip below six percent in the second half of 2027 if trade stability improves.
"Assuming tariffs do not rise, more certainty on the trade environment will allow businesses to adjust and continue hiring," she said.
The Bank of Canada has warned that prolonged high oil prices could eventually spill over into food and other goods, a risk highlighted by Governor Tiff Macklem. While the central bank has not yet seen such a spillover, it cautions that sustained oil price pressure could reignite broader inflationary pressures.
Overall, the CIBC outlook suggests that while price levels may not fall dramatically, the combination of softer inflation, stabilising fuel costs and a more predictable mortgage environment could give Canadian consumers a modest boost to their wallets by 2027.
Based on reporting by Global News.