Canadian household spending is expected to decline significantly over the next several quarters as the steady beat of higher interest rates affects the purchases of homes and other big-ticket items.

The Bank of Canada said in its latest quarterly Monetary Policy Report that it sees borrowing costs for homes rising sharply since the central bank began hiking interest rates in March. The central bank said that households renewing an existing mortgage are facing a larger increase than they have experienced over the past 30 years.

"For example, a homeowner who signed a five-year fixed-rate mortgage in October 2017 would now be faced with a mortgage rate that is 1.5 to two percentage points higher at renewal," the Bank of Canada said.

Residential investment such as new construction builds; ownership transfer costs and renovations are seen to be the most impacted factors from the central bank's move to increase interest rates to 3.75 per cent over the course of the past year.

That kind of residential investment is expected to continue to weaken through the first half of 2023, although to a lesser degree than it has over 2022. Home prices -- which have fallen by less than 10 per cent since March -- are also projected to decline further, notably in markets that saw large increases during the pandemic.

Shelter costs, which include residential investment, along with food prices, contribute roughly 40 per cent to Canada's inflation rate, and typically make up a greater share of spending for lower-income Canadians. Shelter price inflation was close to seven per cent this year and remains elevated amid surging mortgage costs and rent prices.

The Bank of Canada also highlighted how spending on big-ticket items like automobiles, furniture and appliances are already showing signs of slowing down, while demand for services such as travel, hotels, meals at restaurants and communication services will also be impacted.

Household spending should rebound in the latter half of next year and throughout 2024, the Bank of Canada said.

New home purchases will be boosted by strong immigration, while population growth and rising disposable income will help to support rising demand as monetary policy is expected to ease by late 2023.