As certain household cost pressures ease and equity markets bolster incomes, discretionary consumer spending is set to pick up in 2027, according to economists at CIBC World Markets Inc.
In a report published Tuesday, the economists examine the prospects for the Canadian consumer to provide a stronger contribution to economic growth in the year ahead, as factors that have weighed on discretionary spending — such as inflation, mortgages renewing at higher rates, and most recently, higher gas prices — start to diminish.
To start, the worst may be over for gas prices, it said, “and an easing of inflation from here should flip the year-over-year impact on real disposable incomes from a slight negative in 2026 to a marginal positive in 2027.”
At the same time, the surge in mortgage refinancings at higher rates, which has weighed on spending, will start to ease in the year ahead, the economists said.
Recent research from the Bank of Canada is “showing much more modest increases at the time of renewal by the second half of 2027,” the report said.
Alongside the expected easing of certain cost pressures, there are also a couple of other trends that could boost discretionary spending, it suggested.
For one, there’s potential for increased spending by older households, which have been more tight-fisted than other groups lately when it comes to discretionary spending, on categories such as food, recreation and culture.
That trend flies in the face of income and wealth growth, which has been stronger for older groups, the report noted — indicating that “older households may have a longer runway to raise spending ahead.”
Finally, stabilizing house prices should also lead to more households feeling flush, and more willing to tap into recent stock market gains that, until recently, have been outweighed by declining real estate values.
“Admittedly, there is still plenty of uncertainty regarding how much looser the shackles of higher gasoline prices, mortgage payments, and declining home valuations will get over the coming year,” the report said. “However, looking ahead to 2027, the trend does appear to be in favour of less strain on household incomes, leaving a little more room for discretionary spending.”