2025 Consumer Spending Starts Strong Year-Over-Year
Index of Consumer Spending
In January, the Index of Consumer Spending (ICS) scored 101.7 points—an improvement of 5.5 points year-over-year (April 2022 = 100).
- Except for Nunavut and Newfoundland and Labrador, all provinces and territories improved year-over-year.
- The largest year-over-year improvement was in Nova Scotia, which saw an increase of 10.6 points in its ICS. The province saw healthy employment growth of 3.1 per cent in 2024, stronger than any province aside from Prince Edward Island. Wages also increased by 4.9 per cent over that period, outpacing inflation by more than 2.6 percentage points. These favourable conditions allowed for strong spending gains to start 2025.
- For Canada as a whole, we forecast that employment will rise by 0.2 per cent in the first quarter of the year. While relatively modest, the increase will provide a boost to total incomes and allow aggregate spending to pick up.
- Month-to-month, the ICS fell by 12.6 points. A fall in the new year is not unexpected and, in fact, the ICS has dropped in January every month since we began recording this measure in April 2021. Following the holiday season, consumers normally pull back spending to rebuild depleted savings in the early part of the calendar year.
- Also contributing to the lower consumer spending total in January is the federal government’s GST/HST break, which lowered prices for a variety of goods and food services. The ICS is expected to see a small boost once the tax break ends on February 15.
- In January, the consumer price index (CPI) rose to 1.9 per cent year-over-year, 0.1 per cent higher than it was in December. Higher energy prices, particularly gasoline and natural gas, contributed the most to this increase. On the other hand, food prices fell year-over-year by 0.6 per cent, the first time since May 2017, reflecting lower prices from the GST/HST holiday.
- The effects of past interest rate cuts from the Bank of Canada are continuing to work their way through the economy. In January, the Bank cut a further 25 basis points, which will further contribute to consumer spending over time.
- We expect the Bank of Canada to make further rate cuts over the coming months en route to a neutral rate of 2.75 per cent by mid-2025. That said, this expectation does not account for the impacts of any tariffs on Canadian goods from the United States. Tariffs placed on Canadian goods will weaken the Canadian dollar, which in turn will increase the cost of goods that come from the U.S. into Canada. A trade war could ignite inflation, forcing the Bank to pause or even reverse its recent rate cuts.
- The possibility of any future tariffs could also impact the ICS in the month running up to the date when tariffs may be imposed. If tariffs were announced ahead of time, it could lead to Canadian consumers stockpiling U.S.-made goods in an attempt to avoid the higher prices from a tariff-weakened loonie.
For Canada as a whole, we forecast that employment will rise by 0.2 per cent in the first quarter of the year.
Powered by Moneris Data Services
The Index of Consumer Spending is powered by exclusive consumer transaction data provided by Moneris Data Services. Moneris is Canada’s number one payment processor with over 3.5 billion transactions spanning more than 325,000 merchant locations. Our index tracks incremental changes in net transaction volume month-over-month from a set starting point (April 2022 = 100), enabling us to gauge economic activity levels across the country and provide insights into how the Canadian economy is performing coast to coast.
Updates on this index will be released monthly.
The Index of Consumer Spending’s (ICS) methodology has been revised for releases from January 2024 onwards. The ICS no longer tracks the weekly year-on-year changes in consumer spending. Instead, the ICS now tracks the incremental changes in net transaction volume month-over-month, from a set starting point (April 2022 = 100).
Disclaimer: Forecasts and research often involve numerous assumptions and data sources and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal, or tax advice.