Consumers could start feeling financial relief by 2027, says CIBC

According to a new report from CIBC, consumers in Canada could begin experiencing financial relief by 2027, according to senior economist Katherine Judge. The report, titled 'Unshackled? How the constraints on Canadian consumers should loosen in '27,' co-written by senior economists Andrew Grantham and Judge, outlines how the current financial pressures faced by Canadians are expected to ease in the coming year.

High inflation, rising gas prices due to the Iran war, and mortgage rate renewals have been dragging down consumer spending. However, CIBC predicts that the financial constraints hindering Canadians' ability to afford non-essential items will gradually loosen in 2027. Although prices may not decrease, the easing of these pressures will enable households to allocate more income toward discretionary spending.

Canadian households have been particularly affected by the recent surge in gasoline prices. Lower-income Canadians have felt the impact the most. The federal government has introduced several measures, such as the Canada Groceries and Essentials Benefit, which is expected to provide further relief in the coming year. If gasoline prices decrease throughout 2027, this will unlock additional spending power for consumers.

Mortgages are another area where CIBC identifies challenges for consumers. A recent survey found that nearly half of Canadians surveyed reported that their housing costs consume more than half of their paychecks since renewing their mortgages this year. CIBC expects mortgage rate affordability challenges to peak by the end of 2027, with a more stable interest rate environment expected by then.

Judge believes that the "squeeze" from higher post-pandemic mortgage renewal rates will gradually subside in 2027. As the shock of these higher rates diminishes, consumers will have more confidence to spend on non-essential items, such as leisure and entertainment. Furthermore, if trade negotiations with the U.S. progress positively and no further tariff escalations occur, the resulting economic stability and certainty could lead to more hiring and a more robust job market for Canadians.