RBC Economics warns a 2026 energy spike has re-ignited price pressures
The cost-of-living challenge facing Canadian households has eased from its worst point but remains acute. Essential costs have risen far faster than wages since the pandemic, and the pain is sharpest for those lower on the income scale, RBC Economics' Claire Fan and Carrie Freestone said in the July 27 episode of the bank's 10-Minute Take podcast, recorded in Toronto.
"There really isn't a uniform answer because we all live differently and earn different levels of income," Fan said. "With that said, there were some common themes."
Canada's consumer price index has grown at an average annual rate of 3.5% over the past six years — "that's nearly double the pace of the prior six-year period at 1.8%," she said.
The acceleration has been sharpest on necessities: "for essentials like food and shelter, they've been growing at an annual average rate of 5%, which is an even bigger acceleration from pre-pandemic. Very challenging for households."
Freestone added important context on why the cumulative picture matters as much as any single year-over-year print. "Over the past seven years we've experienced two periods of exceptionally high inflation since the pandemic — 2022 to 2024, and now during the Middle East conflict with oil prices spiking," she said.
"It's really important to acknowledge that not only does the year-over-year print matter, but so too does how households are feeling about price growth over the past seven years."
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Wages tracking essentials, but unevenly across income groups
On the surface, wage growth has kept pace with the cost of living — but the picture is more complicated on closer inspection.
"Wage growth is pretty much on par with the rate of price growth among essentials at about 5% each year," Fan said, "though it varies depending on where you land on the income scale."
That divergence matters directly for brokers. Clients further down the income distribution are arriving at renewal with budgets that have been steadily eroded by essential spending, limiting their flexibility on rate selection and loan sizing.
The pressure is visible in the data, with affordability worsening in all 13 major Canadian housing markets tracked by Ratehub.ca in May 2026.
The Middle East conflict has added a new layer of pressure through higher gasoline prices in 2026, though Fan noted that Canadian households "haven't really pulled back on non-gas spending."
A federal government measure provided partial relief: "the federal government also temporarily eliminated gas taxes — 10 cents per liter — which alleviated some pressure," she said.
The reason pump prices have not fallen as sharply as global crude would suggest, Fan explained, is structural.
"There's more that goes into pump prices than just global oil: refinery margins, retailer margins, seasonality, and exchange rates. We're seeing a wider than usual gap between refined products and crude oil, but later this year we expect that to moderate alongside oil prices," she said.
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Bank of Canada holds as weak economy limits its options
Freestone framed the central bank challenge plainly: "We have two challenges at the same time — sticky inflation while consumers feel increasingly stretched. What are central banks going to do about it?"
For mortgage brokers advising clients on rate strategy, Fan's answer is unambiguous. "Both the Bank of Canada and the Fed are caught in a dilemma — supporting growth while keeping inflation low and steady," she said.
"Headline inflation rose above 3% due to higher gas prices, but the Bank hasn't raised interest rates because the economy is starting from a weak spot — it's been stagnating for roughly the past three to four quarters. A weaker economy itself means downward inflation pressure."
The Bank of Canada's overnight rate is expected to hold at 2.25% through year-end. Fan noted that "rate hikes are projected for 2027, contingent on base case economic projections materializing — improvement in per-person economic performance, slow but positive GDP growth, and declines in unemployment."
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