Households already being squeezed by higher rates

Consumption growth was the key driver behind the Canadian economy’s recent strength, particularly in the first half of last year. Since mid-2017, however, retail sales volumes have largely stagnated. The housing slowdown appears to have played a role, with the drop off in house price inflation translating into more modest gains in households’ net wealth. Higher gasoline prices are also a factor, reducing the real purchasing power of households. That said, it appears the biggest driver behind the slowdown in consumption growth has been the surge in interest rates, which began in earnest in mid-2017. Given that households are up to their eyeballs in debt that is perhaps no surprise. The upshot is that first-quarter consumption may even have contracted.