2024-2027 Multi-Year Budget: economic overview

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Macroeconomic outlook

High inflation continues to impact the Canadian economy following the recovery from the COVID-19 pandemic. Leading financial institutions and the Organization for Economic Co-operation and Development (OECD), both agree that inflation and tight labour markets continue to be a concern. Interest rate increases implemented by the Bank of Canada are starting to show some results in moderating inflation. Inflation is forecast to decrease to around three per cent in 2024 and return to the two per cent target in 2025. On the other hand, there are now concerns that the elevated interest rates will weigh down economic activity resulting in lower economic growth of 1.2 per cent in 2024 before increasing to 2.4 per cent in 2025.

S&P Global Ratings (S&P) noted that Guelph’s gross domestic product (GDP) per capita is in line with the national average of approximately $55,000. In the same report, S&P stated that Guelph “benefits from a strong local economy, in part due to a broad manufacturing sector and a large public sector, including schools, hospitals, the University of Guelph, and municipal administration.” S&P also noted that they expect the City’s economic growth to continue for the remainder of 2023.

Employment growth

According to Statistics Canada, Canadian unemployment was at 5.5 per cent in September 2023 with a labour force participation rate of 65.6 per cent. Although the unemployment rate has ticked upwards from the historical low of 4.9 per cent in July 2022, it is still lower than the long-term average of approximately seven per cent.

Guelph’s unemployment rate tends to outperform the broader Canadian rate. As of September 2023, Statistics Canada reported a 4.9 per cent unemployment rate for the Guelph Census Metropolitan Area, which was below the national level.

Interest rate environment

The Bank of Canada’s overnight interest rate (policy rate) forms the basis for what the market will pay for debt and investments. As of October 2023, the current overnight rate is five per cent. The Bank of Canada has indicated its willingness to continue to increase rates to drive inflation down to the two per cent target. Although inflation is currently higher than the target, some economists believe further rate increases may not be required due to slower economic growth. The general consensus among economists is that interest rate decreases are not anticipated to occur until 2025 at the earliest.

The interest rate environment affects the City in two key areas—borrowing and investments.


The interest rate is the cost of borrowing so higher interest rates imply higher borrowing costs for debt-financed projects and vice versa. The City does not plan to issue debt in 2024 but will need to start issuing debt in 2025 as outlined in the Debt strategy. If interest rates remain elevated or increase, it will have a negative impact on the City’s ability to finance projects as it will increase the debt servicing costs and ultimately increase the overall funding required for debt-financed capital projects.


On the investments side, higher interest rates generate higher investment income since the rate of return is directly linked to interest rates. While improved interest rates impact interest earned on cash balances almost immediately, longer-term holdings take time to mature and cannot be reinvested to take advantage of rising rates without a capital loss.

Credit rating affirmed at AAA

A credit rating is an independent assessment of the risk of an organization’s creditworthiness. It is an assessment of an organization’s ability to repay its debt. In August 2023, S&P reaffirmed the City’s credit rating as AAA with a stable outlook, which is the agency’s highest possible rating.

S&P found the City to have a strong local economy due in part to a broad manufacturing sector and a large public sector, including schools, hospitals, the University of Guelph and municipal administration. S&P also cited strong financial management practices, well-defined financial policies, and an exceptional liquidity position in their rating rationale. The report also noted that “Guelph’s credit profile also benefits from strong management, as evidenced by generally good political consensus in passing budgets and effective revenue and expenditure planning practices.” Higher capital spending may require more debt increasing and this could negatively affect the City’s future credit rating.

Inflationary cost pressures on the budget

Inflation is commonly defined as the general increase in prices for goods and services in an economy over a period of time, typically a year. Statistics Canada produces the monthly Consumer Price Index (CPI) that tracks changes in consumer prices. Persistent high inflation remains a concern starting from when economic activity resumed following the lockdowns during the COVID-19 pandemic due to increases in commodity prices, pent-up demand for goods, and impaired supply chains.

Supply chains

The COVID-19 pandemic created massive disruption in global supply chains due to factories that were closed or operating at reduced capacity due to lockdowns. Others shifted to making different products due to changes in demand during the pandemic and there can be a long lead time to shift production back. Supply chains are improving and this is contributing to lower inflation.

Inflationary outlook

Consumer Price Index (CPI)

The latest inflationary data at time of writing was released in September 2023. At that time, inflation was four per cent for August 2023, which is a substantial reduction from the near 30-year high of 8.1 per cent in June 2022. The Bank of Canada forecasts further reductions to around three per cent in 2024 then to two per cent in 2025.

Non-Residential Building Construction Price Index (NRBCPI)

Another price index which may more closely match the municipal costs of goods and services, particularly in the capital budget, is the NRBCPI. This index measures the change over time in contractors’ prices to construct new industrial, commercial, and institutional buildings. The NRBCPI is reported quarterly, and the latest published data was 8.1 per cent which reflected the increase from second quarter of 2022 to second quarter of 2023.

NRBCPI is a better reflection of the pace of cost increases related to the City’s capital program compared to the CPI because it measures changes in the costs of non-residential building construction. Development charges are indexed to the NRBCPI. This high rate puts significant pressure on the capital program as available capital funding does not keep pace with cost increases. This will have the effect of increasing the time to achieve our sustainable funding level.

Historically, the City’s tax rate increases have been above the CPI due to the increase including not just inflationary cost increases, but also expansion of service or service enhancements and infrastructure renewal.

What are the City’s inflationary cost pressures?

  • Cost of infrastructure projects have outpaced the current capital funding levels as common commodities used in capital construction have increased in cost 20 to 50 per cent since January 2020.
  • The largest component of inflationary pressure on the operating budget, representing 49 per cent of the total expenditure budget, is the salary, wages and benefits that are negotiated between the City and its workforce for a specified period of time. The City has six collective bargaining unions and one non-union management group. The City’s associated agencies and boards also have collective bargaining unions in their workforces like the Guelph Police Service and Guelph Public Library. Inflationary increases on compensation lags CPI as approximately 75 per cent of the City’s workforce is unionized (not including local boards) and wage increases are fixed in collective agreements.
  • Paying utility bills for City-owned buildings and facilities—to keep the water running and lights on.
  • Vehicle and equipment maintenance and fuel; the City has more than 1,200 fleet assets that are maintained including police cars, ambulances, fire trucks, transit buses, garbage collection packers, snowplows and bylaw vehicles. We need to keep these in good working order to deliver service to the community.
  • Many of the materials and supplies used by the City are construction or health-related like asphalt, pipes, medical supplies, and cleaning materials which generally rise higher than similar household items, more in line with the NRBCPI above.
  • Increased pressure due to rise in costs for contracted services such as waste haulage, and software licensing for the right to use the existing technologies. Licensing cost annual increases are higher than general consumer goods increase.
  • Market prices for insurance, including premiums for liability and long-term disability insurance, have been increasing at a higher rate than most general goods and services. The market supply for some types of insurance, like cyber-risk coverage, is shrinking.

How does the City mitigate inflationary pressures?

The City first looks at cost containment and continuous improvement measures to find ways to do more with less resources. Examples of some initiatives used to reduce inflationary pressure on the budget include:

  • Continuing to implement energy efficiency initiatives that mitigate utility cost increases.
  • The delay between setting a budget and awarding a tender under high inflation can be a challenge as prices may have increased to an extent that the initial budget is no longer sufficient to do the work. Staff have developed several policies to assist with this challenge and to reduce procurement lead times.
  • Implementing the recommendations from the Service Rationalization Report.
  • Workflow and process automation, reducing the cost of paper, printing costs, staff time, and increasing capacity.
  • A hybrid environment and virtual meetings to reduce mileage costs and staff time commuting between facilities.
  • Ongoing review and updating of procurement documents and contracts to mitigate City risk.
  • Investing in innovation and modernizing payment options for customers and residents.
  • Leveraging reserves to smooth out large cost increases and spread them over a longer period. This is one advantage of multi-year budgets.

As noted in this outlook, the current economic environment is complex with several factors at play. Inflation and interest rates are two of many factors that impact the City budget. The City has a continued dedication through the strategic plan to build a culture of continuous improvement and will continue to closely monitor the economy and the impacts on the City.