In a new article, the Bank of Canada assessed how slower population growth is reducing the workforce, shifting consumption and constraining the economy’s productive capacity. Canada’s population growth slowed to 0.5% in 2025, its lowest rate in more than a century, as the population aged and immigration declined following federal policy adjustments that began in 2024. Lower immigration is expected to weaken demand for housing, potentially easing pressure on rents and house prices, but it will also mean fewer workers, softer demand for other goods and services, and slower economic growth. Population aging will further reduce labor supply and redirect spending toward health care, smaller homes, leisure and related services. Labor shortages could raise wages and prices in some sectors, while higher health care demand could increase government spending and associated funding needs. The Bank said these demographic shifts affect both demand and production and must therefore inform its assessment of economic growth and inflation. Although monetary policy cannot offset the structural effects, understanding them is necessary to keep inflation near the 2% target as the economy adjusts.
Bank of Canada assesses how aging and lower immigration are reshaping growth and inflation
The Bank of Canada assessed how population aging and lower immigration are shrinking labor supply, changing consumption and slowing the economy’s productive growth. Reduced immigration may ease housing cost pressures, but fewer workers and demographic shifts could also create sectoral wage and price pressures that matter for the Bank’s 2% inflation target.