Fewer NPRs Will Slow Inflation but Likely Not by Much

Following the recent announcement that the federal government will be capping the number of non−permanent residents (NPRs) admitted to Canada, we published analysis showing how this will act to lower our forecast for real GDP growth and inflation relative to our prior outlook.

More subdued shelter prices should be the primary driver of the slower pace of price growth resulting from fewer NPR admissions. However, it’s unlikely to have an outsized impact on headline inflation, largely because of little change in mortgage interest cost, barring a major shift in the outlook for rate cuts. In contrast, rent inflation is expected to slow considerably relative to our prior projection but not enough to materially move the needle on aggregate price gains.

Taken together, while fewer NPRs will help to improve housing affordability and take pressure off inflation, the impact is likely to be modest and less than some might have expected. Instead, a meaningful increase in housing supply is needed to get a sustained slowing in shelter inflation.