The cost of living conversation has not gone away. If anything, the Middle East conflict and the oil price spike that has accompanied it have reopened wounds that were only just beginning to heal. On a recent episode of RBC Economics' The 10-Minute Take, senior economists Carrie Freestone and Claire Fan take stock of where North American households actually stand, separating the signal from the noise with the kind of precision that markets and advisors alike need right now.
Seven Years of Pressure
The starting point matters. Fan frames the Canadian experience with clarity: consumer price index growth has averaged 3.5% annually over the past six years, nearly double the 1.8% pace of the prior six-year period. Essentials tell a sharper story. "Food and shelter," Fan notes, "have been growing at an annual rate on average of 5%, which is, of course, an even bigger acceleration from where they were pre-pandemic."
In the United States, the pattern is strikingly similar. Freestone draws attention to the cumulative toll, not just the latest year-over-year print. "Shelter prices, rents are up 40% relative to pre-pandemic," she observes. "Gas prices or energy prices are up 50%." Against that backdrop, average hourly earnings are up 34% in the U.S. That number looks reasonable in aggregate. But as Freestone points out, the distribution is the problem. "Essentials are growing a lot faster than that," leaving lower and middle income households, those for whom food, gas, and housing consume the largest share of take-home pay, in an increasingly difficult position.
The distinction between headline and essential inflation is not a technicality. It defines who is actually winning and who is not in this economy.
Consumers Are Bending, Not Breaking
Given the cumulative weight of seven years of above-trend price growth, the durability of consumer spending on both sides of the border is remarkable. Freestone points to the most recent U.S. retail sales data for June, where real retail sales grew 0.6% month-over-month. "Consumers are very clearly still spending their money," she says. Even more notable was the consumer credit data for May, which showed households actually paying down credit card balances at the same time gas prices were elevated. Freestone attributes part of this to tax refunds that came in higher than a year ago, which provided a cushion. The trade-off, however, is visible in savings. "We saw a 0.8% decline in the personal savings rate since February," she notes, "and that is pretty material."
In Canada, the picture is analogous. Fan describes a household sector that has, by and large, not pulled back on non-gas spending despite the pump price surge. The federal government's temporary suspension of the gas tax, worth $0.10 per litre, has offered some relief. Fan also addresses a question she has fielded frequently: why haven't gas prices fallen further as crude oil prices moderated? The answer is that crude is only one input. "There's also a huge amount of sort of the gas prices would account for things like refinery margins... and retailer margins as well," Fan explains, adding that summer fuel blends and the exchange rate compound the issue. The gap between refined product prices and crude is wider than usual right now, though Fan expects it to narrow later in the year.
Central Banks: Patient, and Purposefully So
The most consequential question for advisors and investors is what central banks do next. The answer, in both Ottawa and Washington, is very likely nothing in the near term.
For the Bank of Canada, Fan explains that unlike the Fed, the Bank does not carry an explicit dual mandate on growth and employment. But that does not mean the economy is irrelevant to its deliberations. "Over the past 3 to 4 quarters, pretty much the year, it has been stagnating and not really growing," Fan says of the Canadian economy. That weakness provides its own disinflationary counterweight, giving the Bank cover to hold. RBC Economics expects the overnight rate to remain at 2.25% through year-end, with rate hikes only materializing in 2027, and only if the base case of per-capita economic improvement, positive GDP growth, and labor market recovery actually materializes.
At the Fed, Freestone points to a more complicated picture. Growth is strong, and the labor market has tightened back to 4.2% unemployment from 4.3%. But the June CPI data brought a meaningful improvement. "Our diffusion index improved meaningfully," Freestone notes. "Now only 25% of CPI basket items are reporting price growth at 3% or above." She is careful to flag the limits of one month's data. "One month does not make a trend," she cautions. Still, the print should be sufficient to keep the Fed on hold through its July meeting, with the path forward remaining, in her words, "entirely data dependent."
3 Key Takeaways for Advisors and Investors
- Essentials inflation is the real story, not the headline. Aggregate CPI has moderated, but shelter, food, and energy costs remain well above wage growth for lower and middle income cohorts. Advisors working with clients across income brackets need to account for meaningfully different lived experiences of inflation when framing portfolio conversations.
- Consumer resilience is real but increasingly funded by savings drawdowns, not income gains. The personal savings rate in the U.S. has declined materially since February, and Canadian households are showing similar patterns. This is not a sign of strength. It is a sign that the buffer is thinning, and any further shock to energy prices or employment could accelerate a pullback in discretionary spending more quickly than the headline data currently suggests.
- Neither the Bank of Canada nor the Fed is moving in the near term, and that stability is deliberate. Both central banks are threading a needle between sticky essential inflation and economies that cannot afford tighter financial conditions. For fixed income allocations, the current rate environment is likely to persist through the end of the year. Investors should not position for imminent cuts or hikes in North America without a material change in the data.
Footnote:
1 RBC. “Podcast: The 10-Minute Take.” RBC Economics. N.p., 9 July 2026. Web. 27 July 2026. <https://www.rbc.com/en/economics/the-10-minute-take/>.
