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Interest Rate Cut Has Only Struck a Minor Chord with Consumers So Far

Canadian Economics

By: Walter Bolduc

The Index of Consumer Confidence Increased 4.7 points in June—a modest bump to bring the index to 66.0 points (2014=100).

  • Canadian consumers’ optimism generally increased when asked about current and future finances, jobs, and major purchases.
  • The percentage of consumers who felt their current finances had improved inched upward from 10.9 to 12.2 per cent. Consumers who considered their finances unchanged fell from 52.9 per cent to 52.2 per cent and consumers who thought their finances were worse decreased from 33.9 to 33.1 per cent.
  • The proportion of consumers expecting better finances in the next six months rose from 15.6 to 16.7 per cent. Consumers who believed their future finances will be unchanged also rose 1.1 percentage points to 50.4 per cent. The share anticipating worse conditions fell 1.5 percentage points to 23.8 per cent.
  • A smaller proportion of consumers were optimistic about more jobs in the next six months (decreasing from 9.2 to 8.4 per cent). However, this was offset by a declining share predicting fewer jobs (decreasing from 27.9 to 26.7 per cent).
  • The proportion of consumers who thought it was a good time to make a major purchase increased from 10.0 to 12.2 per cent while the percentage of consumers who believe it was a bad time fell from 64.8 to 62.8 per cent.

Key insights

The Bank of Canada’s first interest rate cut since March 2022 drove modest consumer confidence gains. Canadians breathed a sigh of relief after the interest rate announcement earlier this month. Households holding mortgage debt are feeling particularly good about the announcement, as many are approaching renewal in a much higher interest rate environment than a few years ago. With more cuts on the way through 2025, confidence among homeowners should continue to improve.

Despite falling interest rates, housing affordability remains a major issue for consumer confidence. Falling interest rates will support the financial outlook for those already holding mortgages, but it is important to emphasis that housing affordability remains a broad concern among Canadians. Many high visibility CPI components have moderated such as food, yet housing has been a constant strain on consumers. Shelter inflation, which accounts for almost 30 per cent of the CPI basket, has remained high with its most recent year-over-year number at 6.4 per cent in April. This is likely affecting Canadians’ views on their current finances, something which a quarter point interest rate cut cannot fix.

For more details about consumer trends, please explore our Index of Consumer Confidence research series.

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