{"id":333613,"date":"2025-12-09T02:13:07","date_gmt":"2025-12-09T02:13:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/333613\/"},"modified":"2025-12-09T02:13:07","modified_gmt":"2025-12-09T02:13:07","slug":"canadian-inflation-overstates-rental-price-growth-warns-cibc","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/333613\/","title":{"rendered":"Canadian Inflation Overstates Rental Price Growth, Warns CIBC"},"content":{"rendered":"

One of Canada\u2019s biggest drivers of inflation is overstated, according to a Big Six bank. A new report from CIBC Economics<\/a> warns investors that official CPI rent inflation overstates growth. This implies the Bank of Canada (BoC)<\/a> may be keeping rates higher than needed. It\u2019s a disturbing argument with one problem: It\u2019s not clear if CIBC understands what CPI actually measures.\u00a0<\/p>\n

Canadian Rents Are Overstating Inflation, Argues CIBC<\/p>\n

Canadian rents are soaring\u2014and falling\u2014depending on which agency you ask, according to CIBC. CPI shows annual growth of rent hitting 5.2% in October, while they highlight CMHC\u2019s reported asking rents are down 3% from last year.\u00a0<\/p>\n

\u201cWe believe that official CPI rent inflation data is overstating actual rent inflation in the economy as a whole,\u201d explains CIBC Deputy Chief Economist Benjamin Tal.\u00a0\u00a0<\/p>\n

Tal believes this discrepancy comes down to incentives (or the lack of factoring them into CPI). In recent years, some rentals have been throwing in freebies with the lease, such as a free month or including utilities. It\u2019s a problem he warns has become common in BC and Ontario, now spreading to regions like Atlantic Canada. A problem the bank sees continuing through 2026 due to soaring condo inventory, slowing population growth, and a rental construction boom.\u00a0<\/p>\n

CIBC Logic Supported Equally By Comparing CPI Rent To Dinosaurs<\/p>\n

CIBC hints at the monetary policy implications: if rent\u2014a primary driver of inflation\u2014is overstated, CPI as a whole is overstated. The logic holds, but the premise is flawed. Concluding that CPI\u2019s rental growth is wrong because it differs from asking rents, is like saying the thermometer is broken because it doesn\u2019t match the weather forecast.<\/p>\n

StatCan\u2019s CPI rent measure isn\u2019t based on asking rents, but on \u201ccontractual rents actually paid by sitting tenants.\u201d It adjusts for quality, size, and services, and excludes subsidized or institutional units. It also includes both new and existing tenants, and the latter is a real doozie. Rental renewals vary widely across the country due to uneven limits on hikes. Despite CPI rent reported at 5% nationally, it varies widely with provinces like Ontario (+4.5%) seeing half the growth of Quebec (+9.7%). CPI is an attempt to measure the change in the cost of living, and currency decay (normies call it inflation). It\u2019s not trying to measure property marketing.\u00a0\u00a0<\/p>\n

Rental Asking Prices Useful For Understanding Price Discovery<\/p>\n

CMHC\u2019s asking rental data is important for understanding a totally different trend\u2014price discovery. This is more about understanding the expectations of landlords, as they\u2019re set by both their \u201chopes and dreams\u201d and the reality of carrying costs on a vacant unit. However, confusing what landlords want (asking rents) with what people pay (CPI) amplifies a problematic feedback loop.\u00a0\u00a0<\/p>\n

Measures of asking prices contribute to a monetary policy problem known as unanchored inflation expectations. People hear that prices are rising, then expect it as an inevitability. This is further amplified when the data comes in higher, driving expectations higher. It\u2019s a problem the Bank of Canada has repeatedly flagged,<\/a> specifically warning that elevated expectations help price setting.\u00a0<\/p>\n

Canadian Rental Inflation Still Growing At Destabilizing Speeds\u00a0<\/p>\n

CPI Rent Annual Growth.\u00a0<\/p>\n

Source: StatCan; Better Dwelling.\u00a0<\/p>\n

Those expectations aren\u2019t unlimited. Once a market becomes saturated, it creates a spillover effect that cascades into more affordable markets. The spillover effect is still sending rents in some cities up to 14% higher<\/a>, despite 2025 quarterly population numbers showing a decline.<\/p>\n

The use of asking prices for rents is an odd move in Canada. The real estate industry looks for price validation\u2014how much a home sold for. Disregarding sales (demand) in the context of supply and factoring in those $1 listings is universally accepted as not helpful. Using asking prices for real estate typically only occurs in developing countries that lack an MLS. Somehow, Canada\u2019s rental market lives and breathes on it, setting landlord expectations that are leaving investors stuck with negative cashflow \u201cinvestment\u201d properties<\/a>.<\/p>\n

We need to stick to the reality of paid rents (CPI) rather than the unvalidated vibes of asking prices. We tried ignoring inflation data back in 2021, and no one is a fan of debt costs rising 19x in less than two years to counter that mistake.\u00a0<\/p>\n

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