Can Mark Carney make life more affordable? Paul Krugman warns voters not to fall for bold price-cut promises

Krugman was speaking about U.S. politics — but his warning lands squarely in Canada, where affordability has become the country’s defining political issue and Mark Carney has staked much of his early agenda on easing cost-of-living pressure (2).

The message from Krugman is simple: Prices rarely go down — and usually shouldn’t — in a healthy economy. And no politician, no matter how persuasive, can force them.

Why Krugman’s warning applies to Canada

In the interview, Krugman explained a point that economists take for granted, but many voters understandably miss: Modern economies operate on steady, positive inflation, not deflation.

The Bank of Canada targets around 2% inflation (3) because low, predictable price growth keeps the economy stable.

Deflation, on the other hand, is catastrophic: When prices fall broadly, people delay purchases, businesses pull back investment and debts become harder to repay.

Carney’s affordability pledge meets economic reality

Mark Carney came into office with the aura of a technocratic problem-solver — a former Bank of Canada governor promising competence, stability and relief for households squeezed by years of high inflation and soaring housing costs.

His platform pledged to rebuild Canada (4) through targeted tax changes, cheaper child care, a major housing-construction push (5) and reforms to competition and internal trade.

But the structural forces driving Canadian prices aren’t easily reversed. Grocery prices have increased by 26% (6) since 2019. In Montreal, rents have surged by 70.8% (7) from pre-pandemic levels. Mortgage payments have climbed as households renew at higher rates. Utilities, insurance and transportation costs have also remained high.

Even as headline inflation receded into the 2–3% range, many Canadians feel little relief because rising prices (8) are affecting their ability to meet daily expenses.

Krugman’s point underscores the challenge Carney faces: Voters want prices to go back, not simply rise more slowly. But modern economic policy is designed to prevent that.

The Bank of Canada will fight inflation back to 2%, but it will not push prices back to 2020 levels. That means the “affordability crisis” is not about reversing prices, it’s about helping households cope with their new reality.

What Canadian households can do to stay afloat?

Since major political promises carry built-in limitations on price-cutting, here are practical steps Canadians can take:

Audit your spending

Go through one or two months of bank and credit-card statements. Identify subscriptions, fees and impulse-spend categories you may have accidentally missed and trim or downgrade them. A survey found that 73% of Canadians (9) admitted they had paid for subscriptions they had forgotten about.

Prioritize high-interest debt

Interest rates on Canadian credit cards are often between 19.99% and 25.99% (10). In a world where groceries cost more, and housing absorbs half a paycheque, expensive debt becomes a second inflation. Paying down these balances — or consolidating them into a lower-rate loan — offers the highest “return” on any spare dollar.

Build a small emergency buffer

The Government of Canada advises (11) that emergency funds help you handle unexpected expenses without going into debt. Even a modest emergency fund can keep a surprise bill from turning into new high-interest debt the next time a car or home repair emerges without warning.