At Close to 2%, Quebec Inflation Has Slipped Back below the National Average, Even Though Rents Are Rising Faster

Historically, the year-over-year change in Quebec’s consumer price index (CPI) has closely tracked the Canadian average. But these figures have diverged somewhat in certain periods. For example, from January 2023 to May 2024, the province’s inflation rate outpaced the rest of the country’s (graph 1). However, at that time, the economy was much more sluggish in Quebec than in Canada as a whole. Inflation stayed above the national average until very recently, even though the province’s real GDP plunged from spring 2023 to the end of the year.

Quebec’s economy has roared back to life External link. since the beginning of 2024, erasing all of its losses as of April. Yet inflation continues to cool despite this recovery. Since June, Quebec’s year-over-year change in CPI has trailed that of Canada as a whole, even though the country’s economy is losing steam. In July, inflation totalled 2.5% across Canada versus 2.3% in Quebec.

Aside from the state of the economy, which has a somewhat lagged effect on inflation, more specific factors—such as changes in certain key components of Statistics Canada’s CPI basket External link.—sometimes influence inflation’s trajectory. Analyzing recent trends for some of these components can help us see what’s ahead, rather than looking in the rearview mirror (which is what would happen if we relied solely on lagged data). Housing (28.6%), food (16.7%) and transportation (16.8%) account for the lion’s share of Canadian household spending on goods and services.

The shelter component is the main factor driving up inflation in Quebec. In July, the price of shelter went up 6.6% year-over-year in Quebec compared to 5.7% across the country. The bigger increase in Quebec is due to faster-rising rents (graph 2), which jumped more than they have since this data started being compiled. If we exclude shelter from the total CPI number for July, inflation ticked up by just 0.8%.

But demographic factors are expected to keep rents in Quebec from increasing as much as in the rest of the country. According to the Institut de la statistique du Québec External link. (in French only), although population growth reached a record high last year, it still wasn’t quite as high as it was elsewhere in Canada. Of course, strong demand for rental apartments is putting pressure on rents across the country, but the uptick in the number of households is just part of the equation.

Rents have soared especially high in Quebec because of a lack of housing inventory and the painfully slow growth in new units. Construction surged after the pandemic, but then tanked once interest rates started climbing up from record lows. Purpose-built rental housing starts in Quebec even dropped 9.0% in 2022, then plummeted by another 27.4% in 2023. Excessively high borrowing costs reduced the profitability of many projects, which then had to be postponed or even cancelled. Construction has rebounded since early 2024, as discussed in our recent Spotlight on Housing External link.. But the previous 2 years were especially tough on builders, leading to a dire shortage of rental units that pushed prices even higher.

According to Altus Group, the Tribunal administratif du logement (TAL) recommended a 2.3% rent increase in Quebec last year, then doubled that figure to 4.6% for unheated units in 2024. That’s the biggest rent increase in thirty years for buildings more than five years old. The Canada Mortgage and Housing Corporation (CMHC) Rental Market Survey for 2024 should therefore show bigger rent gains than the 7.4% increase posted for the previous year, at least in Quebec.

The Altus Group survey published this summer in Immobilier Commercial magazine showed that rents for new units are expected to have soared even higher. For example, in the Quebec CMA, rent increases for relatively new buildings (constructed since 2022) likely averaged 6.6% in 2024–2025, up from 5.0% the previous year.

It doesn’t look like Quebec’s skyrocketing rents will slow anytime soon. Consequently, shelter inflation will keep running hot even though the current downtrend in mortgage rates will offer some relief to certain borrowers. But we should keep in mind that the home ownership rate is lower in Quebec (60%) than in the country as a whole. As a result, 40% of the province’s households will face outsize rent increases for some time yet. For tenants, this will drive the cost of living even higher than the headline inflation figure would suggest.

In short, provincial inflation slipped back below the Canadian average this summer as a result of slower growth in non-housing components like food and transportation, which went up around 1.5% in July in Quebec compared to somewhere between 2% and 3% across Canada. Since these components are volatile, there’s no guarantee that they’ll be able to counterbalance the much stronger pressure on rents in future months, which would keep Quebec inflation below the national average. Lasting relief can only come if housing construction—and productivity—accelerate.