Oct 31, 2026
For most of 2026, the biggest money worry for Canadian households has been prices — at the pump, at the grocery store and on every bill tied to fuel. Now two more factors are applying pressure: disappearing jobs and higher borrowing costs.
The Canadian economy shed roughly 110,000 jobs over August and September and then, on Oct. 28, 2026, the Bank of Canada (BoC) raised its key interest rate for the first time in more than three years.
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Weaker hiring, sticky inflation and rising rates add up to what economists loosely call a stagflation-style squeeze. It doesn’t guarantee a recession. But it does mean households hoping rate cuts would ease stretched budgets will have to wait — and plan for further budget constraints.
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How bad is the job market right now?
Employment fell by 68,000 in September after a drop of 41,700 in August, according to Statistics Canada. As a result, the unemployment rate rose to 6.5%.
And the losses weren’t always in the areas where Canadians expected. The largest losses were in public-sector work — health care, social assistance and education — primarily due to the restrictions from Ottawa that limited international student permits. Also, younger workers were impacted harder with Canadians aged 15 to 24 losing 48,000 jobs in September alone. Finally, the manufacturing sector, a sector exposed to U.S. tariffs, shed 12,700 jobs during this stretch.
While shedding jobs is rough, it’s the impact of these losses that hints at larger issues within the Canadian economy. According to Reuters the two-month slide ended up wiping out a year of progress — with a net loss of 41,200 jobs in 2026, compared to the same timeframe in 2025 when there was a gain of 211,300 jobs.
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Why did rates go up while jobs went down?
It seems backwards to raise borrowing costs in a softening job market but the Bank of Canada is more worried about energy prices and the impact of pervasive fuel costs on inflation.
In its Oct. 28 decision, the BoC lifted its policy rate by 0.25 percentage points to 2.5% — the first target rate increase in over three years.
A major factor in this decision was persistent inflationary pressures. Consumer price inflation has hovered around 3% since April, 2026, and it’s expected to climb to about 3.5% by year’s end. The primary driver is persistently high oil prices tied to the conflict in the Middle East. While core inflation still remains close to 2%, the BoC is worried that businesses will need to pass on their higher fuel and transportation costs to shoppers. To fight these inflationary pressures, the BoC is using its target rate — and signalled it will continue to raise rates if required.
Meanwhile, paycheques are lagging. Average hourly wages for permanent employees rose 2.3% year over year in September, according to Statistics Canada — less than the pace of inflation. For many households, that means less real buying power each month.
Who feels the squeeze the most?
The hike lands hardest on households carrying variable-rate debt. Prime is the rate that variable mortgages and home equity lines of credit (HELOCs) are priced from. As of mid-October, prime sat close to 4.45% at most of Canada’s Big Six banks. Since most lenders typically adjust in step with the BoC rates, borrowers can expect additional increases to variable interest rates in the near future.
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To illustrate, let’s assume a homeowner has a $500,000 variable-rate mortgage at 3.95%, amortized over 25 years. If their rate climbs to 4.2%, their monthly payment would rise from about $2,617 to about $2,685. That’s roughly $816 more a year — on top of higher costs at the pump and the checkout.
Fixed-rate mortgage holders aren’t directly affected until renewal.
Younger workers, new grads and anyone in education or health-care support roles face a different risk: job security.
There’s a modest upside for savers. Rates on high-interest savings accounts (HISAs) often move with the BoC, so cash savings may earn a little more over the next little while.
How to respond to job losses and interest rate increases
A squeeze like this rewards households that act before a layoff notice or payment-change letter arrives. To help, start with these five tasks:
- Know your numbers: Check your mortgage statement to see whether you have a fixed-payment or adjustable-payment variable mortgage and, if it’s fixed-payment, find your trigger rate
- Build a cash cushion: Aim for at least three months of essential expenses in an HISA or a tax-free savings account (TFSA), where interest grows tax-free
- Pay down variable-rate debt first: Lines of credit and credit card balances get more expensive with every hike
- Protect your income: If your sector is cutting, review your employment insurance (EI) eligibility and update your resume now, not after a layoff
- Don’t panic-lock: If your renewal is within 6 to 12 months, compare fixed and variable offers — fixed rates follow bond yields, not the BoC’s overnight rate
For those counting down to relief, be aware that many economists anticipate additional rate hikes — including the possibility of another rate hike before the end of the year. The BoC’s next decision is Dec. 9, which gives households about six weeks to shore up their budgets.
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Romana King, Senior Editor at Money.ca, also writes for various North American publications and the RKHomeowner blog. Her book, House Poor No More, is an Amazon bestseller and five-time award winner, including the 2022 New York CPA Society's Excellence in Financial Journalism (EFJ) Book Award.
