Despite these affordability pressures, today’s retail numbers point to a resilient consumer.  Retail sales in Canada rose 0.9% in March, and are up 3.4% compared to 12 months earlier. In Alberta, retail sales are up even more, by 5.9% year-over-year. But we caution that this represents a lot more spending at the pumps due to higher prices (national sales at gas stations were up by almost 16% compared to a year earlier). Canada has lost jobs to start the year, employment growth has leveled off in Alberta, and the spike in energy costs will be the latest test. Either way, we have cautioned that consumers cannot keep doing the heavy lifting when it comes to driving Canadian growth.

Good news, bad news on interest rates

Do you want the good news or the bad news first?

The good news is that the Bank of Canada said that they will see through a temporary spike in inflation. Further, I think the Bank will welcome last month's CPI report—not because of the elevated headline reading, but because underlying core inflation is cooperating (holding around 2%). This gives the Bank some breathing room for now, and we see them on a ‘wait and see’ pause until we get more clarity on oil prices and pass-through to other goods.

The bad news is that the Bank has warned that “consecutive rate increases” could occur if prices stay high and inflation becomes generalized across goods and services.

And be careful what you wish for: good news on rates could be bad news for the economy. A prolonged hold, or a rate cut, could mean the economy is so weak that the Bank feels they need to prop things up.

We have them on hold this year, but risks are tilted toward rate hikes (not cuts).

Two sides to the affordability coin

Faced with affordability challenges, the natural response for governments is to find ways to lower the cost of living. The federal government has provided a fuel tax holiday until Labour Day. The Alberta government provides fuel tax relief under a formula (relief will be provided starting July 1 if oil prices average at least US$80 per barrel over a 20 trading-day period ending June 16).

Less talked about is the income side of the affordability equation. Life would feel more affordable if more people had well-paying jobs.

The Canada Mortgage and Housing Corporation bases their housing shortage analysis on hitting 2019 levels of housing affordability, or 30% housing costs to income ratio, whatever is more attainable. Their conclusion is that more homes need to be built to take pressure off costs. That’s one way to look at it. But what if incomes did more of the heavy lifting?

Tariff winds are still blowing - But they aren’t last year’s hurricane

While trade headwinds remain, they’ve lost some of the strength they had this time last year. In other words, it could be much worse. The ‘liberation day’ tariffs were successfully challenged in the Supreme Court and have been replaced by a lower 10% general tariff that also faces challenges (see the Chart of the Week).

That said, the upcoming CUSMA review is on everyone's radar; a reprieve from trade uncertainty will be as refreshing as lifting the tariffs themselves. For now, exposure partly dictates outcomes: provinces tied to heavily-tariffed U.S. goods are lagging, while Alberta’s status as a national growth leader is aided by its lower tariff exposure. The key is preserving the CUSMA exemptions while making progress on the more punishing sector-specific tariffs on steel, aluminum, autos, lumber and copper. Our base case? Status quo on tariffs.

Back on track - The Red Deer economic region

As a major oil field services and manufacturing hub, the Red Deer economic region was deeply impacted by the 2015-16 recession. Then came challenges around pipeline constraints in 2018-19, followed by COVID. But recent labour market data shows that the Red Deer region is finding its legs. Employment growth accelerated in the last two years and is tracking higher again this year. Moreover, with population and labour force growth slowing, and the unemployment rate has tucked below the provincial rate.

What’s going on? The employment data tells us there's been a revival in goods-producing industries, like manufacturing and construction, and a stabilization in oil and gas (and related employment).

There are some pretty major projects underway like the Red Deer Regional Hospital Centre Redevelopment and the Springbrook Flour Milling Facility. The region is a transportation hub, situated on Highway 2 between Calgary and Edmonton, and industrial projects like Queens Business Park have attracted business tenants. Red Deer’s machine shops and fabricators have evolved into a world-class advanced manufacturing and precision engineering hub, supporting the energy industry. Moreover, an affordability advantage, particularly in housing, has undoubtedly contributed to strong population growth in the region as people search for less expensive places to live.

October separation referendum now set

Alberta's separation referendum is now set for October 19, 2026 in a two-part question: “Should Alberta remain a province of Canada, or should the Government of Alberta commence the legal process required under the Canadian Constitution to hold a binding provincial referendum on whether or not Alberta should separate from Canada?” The nine other questions relate to constitutional reform and immigration.

A recent survey by the Alberta Chambers of Commerce notes that the dialogue around separation is the top issue in Alberta, followed by the impact of federal policies. Most do not feel the discourse is negatively impacting their business, but most say it is impacting the economy.

We are taking a data-driven approach on the issue: interprovincial migration remains strongly positive, investment intentions have trended higher, and Alberta continues to lead the country in employment growth. The economic fundamentals are holding, but the ongoing discourse is something we are monitoring closely.

Interesting Fact: Alberta housing price advantage narrows, but still wide

The advantage has narrowed, but Alberta housing prices are still lower than the other three largest provinces.

Using the latest MLS benchmark prices, we compare Alberta home prices to others. In April, benchmark prices were $233,900 lower in Alberta than Ontario, and $371,900 lower than in B.C. Quebec home prices have been trending higher, and now exceed Alberta’s by an average of $35,700. Compared to the Canadian benchmark price, Alberta is about $150,000 lower (vs. $369,000 at the peak gap in February 2022).