The Weekly Bottom Line
Our summary of recent economic events and what to expect in the weeks ahead.
Date Published: June 19, 2026
- Category:
- Canada
Canadian Highlights
- Falling oil prices look set to bring some inflation relief in the coming months.
- Housing data point to tentative stabilization in the market, with starts holding above Q1 levels and home sales rebounding in May.
- Upcoming inflation data should show a firm headline print, but the key question for the Bank of Canada’s policy outlook is whether price pressures are broadening beyond energy.
U.S. Highlights
- The U.S.–Iran deal to end the fighting and reopen the Strait of Hormuz eased energy-market pressure this week, but progress is likely to be gradual and geopolitical risks remain.
- Retail sales showed that consumers are still spending despite higher gasoline prices, while elevated mortgage rates continue to weigh on housing construction.
- Warsh’s FOMC debut featured notable changes in communication style, and a hawkish shift by the committee as a whole. This increased market’s expectations for a rate hike this year.
Reports that a memorandum of understanding between the U.S. and Iran has been signed pushed have helped push oil prices lower, easing inflation pressures and supporting market sentiment. However, the downside for oil prices is likely limited, with global supply conditions still tight, suggesting some scope for energy prices to rise from today’s level as markets adjust to the evolving supply-demand balance in the coming months. For Canada, near-term reliefg to inflation and household budgets is likely on the way, and we expect that beyond the tough start to the year, a gradual economic recovery is in the making.
After a tough first quarter, the housing market is showing tentative signs of stabilizing. Housing starts pulled back 6% month-on-month (m/m) in May, but continue to track above Q1 levels, limiting the downside to residential investment in the second quarter. Meanwhile, existing home sales rose 5.5% m/m in May, with gains across most provinces. At the same time, new listings declined, tightening the sales-to-new listings ratio to 49.2%. While still below historical averages, this suggests improving balance. Prices remain mixed, reflecting ongoing weakness in segments such as condos. Overall, improving alignment between buyers and sellers appears to be supporting a partial rebound in activity, leaving sales on track for a firm Q2 gain. For the housing sector overall, headwinds from elevated inventories and slower population growth remain, but the near-term signal is one of stabilization rather than deterioration (see our Provincial Forecast for more details).
Emerging stability in the housing market is a positive sign, but consumer spending remains soft in the face of rising inflation. Retail sales rose 0.5% m/m in April, but volumes were unchanged, indicating that higher prices are driving gains (Chart 1). Strength in autos and gasoline masked underlying weakness, with core retail sales falling for a second consecutive month (-0.7% m/m). The dynamic suggests that households are becoming more selective as higher energy costs weigh on budgets. As a result, consumer spending is likely to grow modestly in Q2. The recent decline in energy prices should offer some relief heading into the second half of the year.
Attention now turns to next week’s inflation report for May. We expect a firm print, with gasoline prices rising about 3% in the month. However, the key focus will be on inflation breadth (Chart 2) and core measures. In April, headline inflation rose to 2.8% y/y on higher energy prices, while the average of the Bank of Canada’s (BoC) core measures cooled to 2.1%. The critical question for the BoC will be whether price pressures are broadening beyond energy prices and, given that the upside to oil prices appears limited for the time being, how persistent any pass-through becomes.
Overall, while the upcoming inflation report will be important for assessing underlying pressures, the broader backdrop remains one of excess supply, subdued domestic demand and likely moderating energy prices. This should limit the pass-through to core inflation and keep the Bank of Canada on the sidelines through the remainder of the year.
This week delivered a potent mix of geopolitical relief, consumer and housing updates, and the Fed’s first rate decision under Chair Kevin Warsh. The U.S.–Iran memorandum of understanding eased pressure on energy markets. WTI fell to as low as $74/barrel on Thursday – down from $80/barrel last week – before climbing back to $77/barrel at time of writing on renewed fighting in Lebanon. As we note in our recent commentary, full normalization of oil markets is likely months away, and peace remains fragile. Intensified fighting between Israel and Hezbollah on Thursday led to the cancellation of planned U.S.–Iran talks in Switzerland today.
So far, consumers have remained relatively resilient to the gasoline price shock, partly shielded by higher tax refunds. May retail sales rose a stronger-than-expected 0.9% month-on-month. Higher prices again boosted the nominal headline, but this was not simply an inflation story (commentary). Real sales also moved higher (Chart 1). Still, with real disposable income down 1% from a year ago and credit card balance growth accelerating in March and April, some consumers are feeling stretched. Food store sales were flat and spending at bars and restaurants softened, with real food services and accommodation spending down from a year ago.
Looking ahead, consumers will welcome lower prices at the pump. The labor market also appears to be strengthening (commentary), while household wealth is supported by rising equity valuations. As we note in our latest forecast, this should help sustain consumer spending at a moderate 2% pace through year-end, roughly half a point below our pre-conflict expectation. May personal spending and income data due next Thursday will offer more detail on momentum.
Housing remains the economy’s sore spot. Starts tumbled 15.4% in May to the lowest since May 2020 (commentary). The drop was exaggerated by volatile multifamily construction, but single-family starts also slipped and permits offered little encouragement. Even if some weakness reverses, mortgage rates near 6.5% leave builders and buyers cautious.
Judging by this week’s FOMC statement, the rate environment is unlikely to ease soon. At Warsh’s first meeting as Chair, the FOMC held rates at 3.50%–3.75%, but communications leaned hawkish. In the economic projections, inflation was revised higher and growth lower this year, while the median “dot” now points to a possible hike later this year. Warsh also said the FOMC was “unambiguously and unanimously” resolved to fight inflation, reinforcing that price stability remains the priority. In a marked shift from the Powell-led FOMC, the statement was shortened substantially and forward guidance was dropped. The new Chair also announced five new task forces to review Fed communications, the balance sheet, data sources, productivity and labor markets, and inflation frameworks. The lack of forward guidance left investors with less information about the Fed’s reaction function. Without it, markets appear to have keyed in on the statement’s conclusion that “the Committee will deliver price stability”: the probability of a rate increase by September jumped to 73% after the decision, up from about 27% (Chart 2).
Disclaimer
This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.
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