We've had a few clients ask about the potential of interest rates rising because inflation has started to creep higher.

The simple answer is that inflation is only one side of the equation. The other side is economic growth, and that's where Canada has a bigger problem.

Private sector investment, the money businesses spend on expanding, innovating, and becoming more productive, has been weak for years. That's important because productivity growth is what ultimately drives higher wages, stronger profits, and a healthier economy. Unfortunately, the private sector is becoming a smaller share of Canada's economy while government spending and employment continue to grow.

The challenge is that governments generally don't generate productivity gains the way businesses do. As the private sector shrinks relative to the overall economy, Canada's long-term growth outlook becomes more challenging.

Source: Statista 2026. Retrieved June 18, 2026. Data estimated for 2027-2031. Adjusted for purchasing power parity.

That leaves the Bank of Canada in a difficult position. While inflation may remain somewhat elevated, raising interest rates could further dampen an already sluggish economy. At present, policymakers appear more focused on addressing weaker growth than on curbing moderate inflation.

It’s important to note that this is specific to Canada, the US is at the other end of the spectrum.

As investors, this serves as a reminder that inflation and interest rates don't always move together. Sometimes the bigger risk isn't inflation, it's insufficient economic growth.

An economy can survive a little inflation. It has a much harder time surviving a shortage of growth.

I have also included a piece from our CIBC Economics team entitled “Tax deductibility, not rent control, is the right way to support renters”.

As always, if you have any questions, please feel free to give us a call at any time.

Have a great weekend.

Milan