Canadian Inflation Falls Within Bank of Canada’s Target Range; Food and Shelter Costs Remain High

General Robyn McLean 19 Jul

Is this a sign of better news to come? Some insight on the latest inflation data and what it means to Canadians from Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres.

Canadian Inflation Falls Within Bank of Canada’s Target Range; Food and Shelter Costs Remain High
June inflation data released today by Statistics Canada showed that the Consumer Price Index (CPI) rose 2.8% year-over-year (y/y), slightly below expectations. This was the lowest CPI reading since February 2022.

The decline in inflation was mainly due to lower energy prices, which fell by 21.6% y/y. Without this decline, headline CPI inflation would have been 4.0%. The year-over-year decrease resulted from elevated prices in June 2022 amid higher global demand for crude oil as China, the largest importer of crude oil, eased some COVID-19 public health restrictions. In June 2023, consumers paid 1.9% more at the pump compared with May.Food and shelter costs remained the two most significant contributors to inflation, rising by 9.1% y/y and 4.8% y/y, respectively. Food prices at stores have risen nearly 20% in the past two years, the most significant rise in over 40 years. Shelter inflation rose slightly from 4.7% y/y in May.

The largest contributors within the food component were meat (+6.9%), bakery products (+12.9%), dairy products (+7.4%) and other food preparations (+10.2%). Fresh fruit prices grew at a faster pace year over year in June (+10.4%) than in May (+5.7%), driven, in part, by a 30.0% month-over-month increase in the price of grapes.

Food purchased from restaurants continued to contribute to the headline CPI increase, albeit at a slower year-over-year pace in June (+6.6%) than in May (+6.8%).

Services inflation cooled to 4.2% y/y from 4.8% y/y in May. This was due to smaller increases in travel tours and cellular services.

The Bank of Canada’s target range for inflation is 1% to 3%. While June’s inflation reading was within the target range, it is still higher than the Bank would like. The Bank raised the overnight policy rate twice in the past two months to reduce the stickier elements of inflation.

There were signs of easing price pressures for consumer goods also. Durable goods inflation continued to cool to 0.8% y/y in June. Passenger vehicle prices rose slower in June (+2.4%) than in May (+3.2%). The year-over-year slowdown resulted from a base-year effect, with a 1.5% month-over-month increase in June 2022 replaced with a more minor 0.6% month-over-month increase in June 2023. This coincided with improved supply chains and inventories compared with a year ago. Household furniture and equipment was up only 0.1% y/y in June, down from a peak of 10.5% last June.

The June inflation data provides some relief to consumers, but it is clear that food and shelter costs remain a major concern. The Bank of Canada will closely monitor inflation in the coming months to see if it is on track to return to its 2% target. There is another CPI report before the Bank meets again on September 6th.

The Bank of Canada’s underlying inflation measures cooled further in May. CPI-trim eased to 3.7%y/y in June from 3.8% y/y in May, and CPI-median registered 3.9% versus 4.0% y/y in May. The chart below shows the closely watched measure of underlying price pressures, the three-month moving average annualized of the core measures of CPI. They continue to be just under 4%.

Canadian inflation continued to make encouraging progress in June. However, the cooling in headline inflation benefits from sizeable base effects due to the favourable comparison to high energy prices last June. The Bank of Canada (BoC) is watching its preferred core measures, which continue to show glacial progress.

Bottom Line

It takes time for the full effect of interest rate hikes to feed into the CPI. Mortgage interest costs will continue to rise as higher interest rates flow gradually through to household mortgage payments with a lag as contracts are renewed.

BoC Governor Macklem emphasized last week that the Bank has become worried about the persistence of underlying inflation pressures in the economy. The June inflation data likely provides some reassurance that things are moving in the right direction, but not fast enough for the Bank of Canada to let its guard down.

The BoC is facing a difficult balancing act. It needs to raise interest rates enough to bring inflation under control, but it also needs to be careful not to raise rates so high that it causes a recession. The next few months will be critical for the BoC as it assesses the risks of inflation and recession.


Bank of Canada June Rate Hike Spooks the Housing Market

General Robyn McLean 17 Jul

The latest interest rate hike and how it has impacted the housing market from Dr. Sherry Cooper, Chief Economist for Doiminion Lending Centres. 

Bank of Canada June Rate Hike Spooks the Housing Market
The Canadian Real Estate Association says the BoC’s surprise rate hike in early June cooled activity following a two-month solid start to the spring housing season. Home sales posted a 1.5% gain between May and June, tepid by recent standards. Sales were up in June in a little over half of all local markets, with increases in British Columbia and Alberta offsetting fewer sales in the Greater Toronto Area (GTA).

On a year-over-year (y/y) basis, the number of transactions in June grew by 4.7%. According to Shaun Cathcart, CREA’s Senior Economist, “History suggests the price side of things will respond to this with only a slight lag. Add to that the recent Bank of Canada rate hikes, and we can probably expect price growth to be moderate in the months ahead, likely still with some degree of upward pressure, but less than in the last three months.”

The CREA cut its forecast for home sales this year as tight inventory, and the rate hikes weigh on the housing market. The CREA now estimates that sales in 2023 will be down 6.8% from a year earlier, a more dramatic slowdown than the 1.1% decline forecast in April.

“With the Bank of Canada unexpectedly ending its pause on rate hikes in June and hiking again in July, a major source of uncertainty has returned to the housing market,” the CREA said.

New Listings

The number of newly listed homes was up 5.9% month-over-month in June. Building on gains of 3.1% in April and 7.6% in May, new listings have gone from a 20-year low in March to closer to (but still below) average heading into the summer.

With new listings outperforming sales in June, the sales-to-new listings ratio eased to 63.6% compared to 66.4% in May and a recent peak of 68.3% in April. The measure remains well above the long-term average of 55.2%.

There were 3.1 months of inventory on a national basis at the end of June 2023, unchanged from the end of May and down more than an entire month from the most recent peak at the end of January. The long-term average for this measure is about five months.

Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) climbed 2% month-over-month in June 2023—a significant increase for a single month on the heels of similar gains in April and May. It was again very broadly based, with a monthly price increase between May and June observed in most local markets.

The Aggregate Composite MLS® HPI now sits 4.5% below year-ago levels, the smallest decline since November 2022.

Bottom Line

Home construction in Calgary, the home to the Canadian energy industry headquarters, is booming, driven by a rush of newcomers from abroad, as well as from more expensive housing markets in the rest of Canada.

Home prices in Calgary have risen 4.2% in a year, the most significant rise among the more than 50 markets the CREA tracks. It’s the only major Canadian city to experience any increase at all. The benchmark price in the city has risen 34% in three years.

Alberta’s population was 4.7 million as of April 1, up 4.5% in 12 months, trailing only tiny Prince Edward Island for the fastest growth among Canada’s provinces. In the first quarter, Alberta had the largest net interprovincial gain — almost 15,800 people — of the country’s provinces and territories. International migration contributed to nearly 36,000 new residents.

Unlike previous surges in Alberta’s population driven by the oil industry’s demand for labour, this boom is happening during a relatively tame period for the province’s most important industry.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres 

Suprise rate hike. More to come?

General Robyn McLean 12 Jun

A little more insight on the latest rate hikeby the BoC and what’s to come from our friends at First National.

Surprise rate hike. More to come?

Predictions of a resumption of interest rate increases by the Bank of Canada have come true … except it happened a month earlier than most forecasters expected.  It was a surprise move that now has the experts speculating about another hike in July.

At its June setting, last week, the BoC bumped up its trendsetting overnight rate by another 25 basis-points to 4.75%, its highest level in 22 years.  The Bank pointed to persistent inflation pressures which saw the inflation rate climb by a tenth-of-a-point to 4.4% in April, a resilient economy that posted first-quarter growth of 3.1%, and a labour market that remains strong.

On Friday, though, a small crack appeared in that solid job market.  The unemployment rate rose for the first time in nine months.  It now stands at 5.2%.  That is up from 5.0%, where it has been since the start of the year.

Labour market statistics can be notoriously volatile, so one month does not signal a trend.  But the analysts do see some deeper signs of softening with weakness in total employment and a monthly decline in hours worked.

Whether that will be enough to stave off another rate increase on July 12 remains to be seen.  But the Bank will have more information to work with by then: inflation numbers for May and the June employment report will both be out.

For now, the market watchers seem to be favouring another quarter-point increase that would move the Bank of Canada rate to 5.0%.

  • Jun 12, 2023
  • First National Financial LP


Title Fraud and Title Insurance – Benefits for Borrowers – Why is it important?

General Robyn McLean 20 Apr

Why Title Insurance is important? Some great information from our friends at CMI Financial Group.

Recently, there have been headlines about identity theft, fraud and stealing homes. Title fraud occurs when the fraudster assumes the identity of the homeowner and then uses it to assume the title on the home, sell the property or obtain a mortgage on that property or other properties in the homeowner’s name.

Protecting personal information

Borrowers can take steps to protect themselves by safeguarding their personal information:

  • Keep personal information in a safe place.
  • Don’t give out personal information on the phone, through the mail or online unless the borrower has initiated contact.
  • Give your Social Insurance Number (SIN) only when absolutely necessary. Ask if other identification can be used.
  • Check with the land registry office to ensure that the title of your home is in your name.
  • Consider purchasing title insurance.

Title insurance coverage

While borrowers can take preventative measures to protect their personal information, they can also look at title insurance which protects the homeowner from a number of risks, including:

  • Someone trying to acquire the home through forgery or fraud;
  • Minor errors in the legal description of the property;
  • Unpaid utilities, mortgages, taxes, or condo maintenance fees;
  • Removal of existing structures if they violate zoning laws;
  • Legal claims by someone else on the property, such as property liens or construction liens from unpaid contractor bills;
  • Protection from another person having interests on the property;


If the previous owner did not pay their contractor and there are construction liens on the property, title insurance would cover this. If a structure needs to be removed because it encroaches on a neighbour’s property, title insurance will cover the removal costs.

Title insurance exclusions

The following issues are not covered by title insurance:

  • Zoning bylaw violations from home renovations or additions that the title insurance policy holder is responsible for;
  • Environmental hazards;
  • Known title defects that we revealed before the homeowner bought the property;
  • Wear and tear on the home and property, and;
  • Risks and damages that would be covered by homeowner’s insurance.

While title insurance can’t protect a borrower from becoming a victim of fraud or title defect, it can protect them from many of the consequences and the resulting stress.

The Bank of Canada Holds Rates Steady Even As the Fed Promises to Push Higher

General Robyn McLean 8 Mar

The latest on today’s Bank of Canada annoucement and what it means for Canadians from Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres.

The Bank of Canada Holds Rates Steady Even As the Fed Promises to Push Higher

As expected, the central bank held the overnight rate at 4.5%, ending, for now, the eight consecutive rate increases over the past year. The Bank is also continuing its policy of quantitative tightening. This is the first pause among major central banks.

Economic growth ground to a halt in the fourth quarter of 2022, lower than the Bank projected. “With consumption, government spending and net exports all increasing, the weaker-than-expected GDP was largely because of a sizeable slowdown in inventory investment.” The surge in interest rates has markedly slowed housing activity. “Restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand.”

In contrast, the labour market remains very tight. “Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated.” Wages continue to grow at 4%-to-5%, while productivity has declined.

“Inflation eased to 5.9% in January, reflecting lower price increases for energy, durable goods and some services. Price increases for food and shelter remain high, causing continued hardship for Canadians.” With weak economic growth for the next few quarters, the Bank of Canada expects pressure in product and labour markets to ease. The central bank believes this should moderate wage growth and increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.

In sum, the statement suggests the Bank of Canada sees the economy evolving as expected in its January forecasts. “Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year,” policymakers said.

However, year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3½%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.

Today’s press release says, “Governing Council will continue to assess economic developments and the impact of past interest rate increases and is prepared to increase the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

Most economists believe the Bank of Canada will hold the overnight rate at 4.5% for the remainder of this year and begin cutting interest rates in 2024. A few even think that rate cuts will begin late this year.

In Congressional testimony yesterday and today, Federal Reserve Chair Jerome Powell said that the Fed might need to hike interest rates to higher levels and leave them there longer than the market expects. Today’s news of the Bank of Canada pause triggered a further dip in the Canadian dollar (see charts below).

Fed officials next meet on March 21-22, when they will update quarterly economic forecasts. In December, they saw rates peaking around 5.1% this year. Investors upped their bets that the Fed could raise interest rates by 50 basis points when it gathers later this month instead of continuing the quarter-point pace from the previous meeting. They also saw the Fed taking rates higher, projecting that the Fed’s policy benchmark will peak at around 5.6% this year.

Bottom Line

The widening divergence between the Bank of Canada and the Fed will trigger further declines in the Canadian dollar. This, in and of itself, raises the Canadian prices of commodities and imports from the US. This ups the ante for the Bank of Canada.

The Bank is scheduled to make its next announcement on the policy rate on April 12, just days before OSFI announces its next move to tighten mortgage-related regulations on federally supervised financial institutions.

To be sure, the Canadian economy is more interest-rate sensitive than the US.  Nevertheless, as Powell said, “Inflation is coming down, but it’s very high. Some part of the high inflation that we are experiencing is very likely related to a very tight labour market.”

If that is true for the US, it is likely true for Canada. I do not expect any rate cuts in Canada this year, and the jury is still out on whether the peak policy rate this cycle will be 4.5%.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Purchasing an older home? Here are some red flags to watch out for…

General Robyn McLean 9 Feb

Some great info from our friends at Zoocasa.

When house hunting, many buyers prefer the history and character of an older home versus the cookie-cutter design that often comes with new developments.  However, if you’re looking into buying an older home, it’s important to arm yourself with knowledge so you can assess the house objectively and protect yourself from costly surprises down the road.

Leave it to the professionals – but ask around

One of the most important things to remember with older homes is the worst problems are often the least apparent. There may be clues to the naked eye, but only professional home inspectors can accurately verify the state of a home. Therefore, it’s recommended you get a few different opinions, and if there’s something specific you’re still unsure about, find an inspector with a background in that area or obtain a repair bid from an expert in the trade.

Additionally, you should consult with the real estate agent and ask when major components were installed, updated or replaced (if ever). The goal is get as full a picture of the home’s history as you possibly can. Most sellers will disclose any plumbing, electrical or roofing issues. Don’t hesitate to talk to neighbours as well – they’re a great source of information and chances are they’ll be honest if their basements have flooded recently or they have mice scampering around.

Be aware of the following risks associated with old homes:


Head down to the basement and check the foundation for signs of cracks, crumbling or shifting. Mold could also be a sign of a weak foundation. Check the grade at the perimeter of the house – settling near the foundation may indicate water in the basement. Quite often, older homes have porous stone foundations and lack effective waterproofing systems, which can lead to water damage.

Water damage

Water damage is one of the most common dilemmas in old homes and can lead to a range of problems, from damp walls to fungal decay and woodworm. Damaged plaster and stained walls and ceilings are a telltale sign, and you may even feel a temperature difference in the walls. Look for missing or broken roof shingles, rotted or loose trim boards, and disconnected or plugged-up gutters and downspouts.


Read the electrical panel’s amperage rating – modern homes require at least 100 amps, and preferably 200 since we have so many devices plugged in.  Look around to see where the switches and outlets are. Three-pronged sockets with reset buttons are good; two-pronged ones with scorch marks are bad. Original knob-and-tube wiring and aluminum wiring pose a fire hazard, and watch out for fuses.


Test the water pressure in faucets and showerheads, keeping an eye (or ear) out for dripping taps. Duck under the sink and take a look at pipework, tanks and cylinders if you can. The plumbing system should be copper pipes with copper soldering, or PVC piping. Lead or cast-iron pipes will need to be replaced. If you’re thinking of installing an extra bathroom, establish where the water supply and waste pipes run.

Sewage and drains

Many older properties still have clay pipes, which are susceptible to tree roots that grow through the pipe walls and cause blockages. Be alert for overflowing manhole covers or drain covers, and unpleasant smells. A qualified inspector will be able to tell you if the sewer system and drains work properly. If possible, figure out when the sewage service from the street was last upgraded.


If the house has older plaster walls, it probably has little or no insulation. Even if there is insulation, it may well be deficient or contain asbestos. You’ll also want to look for double glazed rather than single pane windows. These things will make your home more energy efficient.


Find out how old the furnace is and what type of energy is used to heat the home: oil, electricity, natural gas or boiler system? Radiators may add charm, but they’re an expensive option and complicate air conditioning in the summer.


What condition is the roof in? Definitely poke around in the attic. Some clues that you may need to replace or repair it include leaks or water stains near the chimney and on the inside of the top floor ceiling. Be sure that the ridges aren’t bowing or the eaves sagging. Don’t forget to examine the chimney’s brickwork too – any chipping or crumbling is a red flag.

Remember, safety first and trust your instincts!

Today’s central bank announcement

General Robyn McLean 25 Jan

More information on today’s Bank of Canada increase for Canadians…and the glimmer of hope that we may have reached the peak. From our friends at First National.

Bank of Canada increases its benchmark interest rate to 4.50%

  • Jan 25, 2023

Today, the Bank of Canada increased its overnight benchmark interest rate 25 basis point to 4.50% from 4.25% in December. This is the eighth time since March 2022 that the Bank has tightened money supply to address inflation.

While the headline increase will certainly make news, it is the Bank’s accompanying commentary on its future moves that will capture the most attention. We summarize the Bank’s observations below, including its forward-looking comments on the potential for future rate increases.

Canadian inflation

  • Inflation has declined from 8.1% in June to 6.3% in December, reflecting lower gasoline prices and, more recently, moderating prices for durable goods
  • Despite this progress, Canadians are still “feeling the hardship” of high inflation in their essential household expenses, with persistent price increases for food and shelter
  • Short-term inflation expectations remain elevated and while year-over-year measures of core inflation are still around 5%, 3-month measures have come down, suggesting that core inflation has “peaked”

Canadian economic and housing market performance

  • The Bank estimates Canada’s economy grew by 3.6% in 2022, slightly stronger than was projected in the Bank’s Monetary Policy Report in October, however it projects that growth is expected to “stall through the middle of 2023,” picking up later in the year
  • Canadian GDP growth of about 1% is forecast for 2023 and rising to about 2% in 2024, little changed from the Bank’s October outlook
  • The economy remains in “excess demand” and the labour market remains “tight” with unemployment near historic lows and businesses reporting ongoing difficulty finding workers
  • However, there is “growing evidence” that restrictive monetary policy is slowing activity especially household spending
  • Consumption growth has moderated from the first half of 2022 and “housing market activity has declined substantially”
  • As the effects of interest rate increases continue to work through the economy, spending on consumer services and business investment is expected to slow
  • Weaker foreign demand will likely weigh on Canadian exports
  • This overall slowdown in activity will allow supply to “catch up” with demand

Global economic performance and outlook

  • The Bank estimates the global economy grew by about 3.5% in 2022, and will slow to about 2% in 2023 and 2.50% in 2024 — a projection that is slightly higher than the Bank’s forecast in October
  • Global economic growth is slowing, although it is proving more resilient than was expected at the time of the Bank’s October Monetary Policy Report
  • Global inflation remains high and broad-based although inflation is coming down in many countries, largely reflecting lower energy prices as well as improvements in global supply chains
  • In the United States and Europe, economies are slowing but proving more resilient than was expected at the time of the Bank’s October Monetary Policy Report
  • China’s abrupt lifting of pandemic restrictions has prompted an upward revision to the Bank’s growth forecast for China and “poses an upside risk to commodity prices”
  • Russia’s war on Ukraine remains a significant source of uncertainty
  • Financial conditions remain restrictive but have eased since October, and the Canadian dollar has been relatively stable against the US dollar


Taking all of these factors into account, the Bank decided today’s policy rate increase was necessary and justified.

However, the Bank also offered this important piece of news: “If economic developments evolve broadly in line with (its) outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.”

That sounds positive, but as is customary, the Bank also noted that it is prepared to increase the policy rate further if needed to return inflation to its 2% target. It also added the usual language that it “remains resolute in its commitment to restoring price stability for Canadians.”

Although the Bank did not say it, the bottom line is Canadians will have to wait and see what comes next.

Next touchpoint

March 8, 2023 is the Bank’s next scheduled policy interest rate announcement.

  • Source: First National Financial LP

What’s ahead for Canada? Here is what the country’s leading economists think.

General Robyn McLean 24 Jan

Valuable intel from our friends at First National

What’s ahead for Canada? Here is what the country’s leading economists think.
Jan 24, 2023
First National Financial LP
The Economic Club of Canada is our country’s most respected platform for non-partisan dialogue among the world’s most notable thought leaders. Its annual outlook breakfast is its signature event. This year, the breakfast featured four of the country’s top chief economists responding to a series of questions designed to encourage predictions about 2023. First National attended and shares these highlights.

Is the Canadian economy headed for a soft landing or a full-on recession in 2023? It looks like we are in for a monetary-policy induced slowdown and possibly a soft landing where inflation is tamed without devasting impacts on the economy. While economists and policymakers have fairly consistently underestimated the resilience of the Canadian economy in the past three years, the expression ‘never bet against the Fed’ still applies. In the post Second World War era, every time the US Federal Reserve and the Bank of Canada raised rates as much as they have this past year the following year saw an economic slowdown.

Is the Bank of Canada nearing the point of pausing its policy of increasing interest rates? Notwithstanding the possibility of another 0.25 basis point increase on January 25, it looks like the Bank is signalling that it is comfortable with what it has done so far and is aware that recent rate hikes are creating challenges for Canadians. It may pause after January for a few months and reassess if further moves are necessary based on inflation reports.

Is there a risk the Bank of Canada has gone too far, too fast to tame inflation? Yes and there may be more pain to come because of recent policy rate increases. There are also secular headwinds that used to be tailwinds for the economy to sort out. Free trade has been replaced by re-shoring and protectionism which hurts Canada because we are an export nation. Carbon used to be free and it isn’t now. The housing market has rolled over because it is an interest-rate sensitive part of the economy. The are too many headwinds to completely avoid some form of recession.

When will inflation moderate? By year end 2023, inflation in Canada will be at the one to three percent range and core inflation will be right at 3%. Recent three-month rolling averages of inflation look to be trending in the right direction in both Canada and the U.S. Food and energy price inflation in particular have declined. However, there is a risk that inflation settles in at 5% which would require additional action by the Bank of Canada.

Will there be job losses in the Canadian economy this year after such a strong month of job creation in December 2022? Employment is a lagging indicator of economic health, but the creation of 100,00 jobs in December was a positive sign. Going forward, it is likely that there will be job losses and possibly as many as 100,000 across Canada. But in context, job losses in many past recessions numbered 300,000. Some industries did have significant employment gains in the past two years including technology, financial services and public administration but other industries do not have slack capacity which means they may be cushioned from future job cuts. For example, manufacturing typically employs 2 million Canadians and sheds 300,000 jobs in a recession. However, the industry now only employs 1.7 million so it is unlikely that job losses, if they occur, will reach that traditional 300,000 level.

Are or were we in a housing bubble? It depends on where you are in Canada because there are extreme differences between the Prairie provinces (no bubble) and southwestern Ontario (a bubble). In the first two years of the pandemic, Canada’s house prices increased by 50% and now depending on location, they are off by 20 to 25% from the peak. The net result is home prices are still higher than they were pre-pandemic.

Will housing become affordable in the next two years? Very unlikely. The housing market is more likely to become less affordable at least in the near term even as a record level of new supply comes on stream. That supply will not keep up with new demand driven by immigration and as many of Canada’s 10 million millennials begin buying their first homes.

Will OSFI change/tighten mortgage qualification rules this year? The regulator has opened public consultations on its Guideline B-20 (Residential Mortgage Underwriting Practices and Procedures) with the intention of completing those consultations by April 14, 2023. It is unlikely to make any changes until it observes spring housing market activity. Since OSFI exists to manage risk, not to make housing more affordable, changes – if any – would tend to respond to their view of the relative risk in the system. So far, Canadians have handled interest rate shocks very well and as a result, mortgage lenders have seen remarkable stability in credit performance.

How does Canada’s economic outlook compare to America’s. America has the potential to be more resilient because U.S. consumers went through a deleveraging cycle after the financial crisis whereas Canadians levered up. This difference shows up in share of income that is devoted to debt service in Canada versus the U.S. In the U.S., consumer debt service is at historically low levels and in Canada it’s about to become historically high. American firms did not hire as aggressively as Canadian firms either, meaning fewer areas of the job may be at risk. However, Canada has a higher personal savings rate, and our provincial and federal fiscal positions are better than those in the U.S.

Is the Canadian dollar poised for a rebound? Most of the recent weakness in the Canadian dollar is due to the relative strength of the U.S. dollar but our currency has also been held back because of commodity prices. It is possible that the U.S. dollar will weaken later this year with a benefit to our currency, but as is, the Canadian dollar is currently trading close to its fair value.

Inflation report offers hope of interest rate relief

General Robyn McLean 22 Nov

Could there be some positive signs as we move toward the end of 2022…details from the experts at First National.

  • Nov 22, 2022
  • First National Financial LP

The latest Statistics Canada inflation numbers have given some market watchers hope that the Bank of Canada will slow or, perhaps, even pause interest rate increases.

The Consumer Price Index, or “headline inflation”, held steady from September to October at 6.9% on a year-over-year basis.  Lower food price inflation off-set higher gasoline prices.  Another welcome sign showed core inflation, which factors out volatile items like food and fuel, slowed in October to 5.3%, year/year, down from 5.4% in September.  The Bank of Canada uses the core inflation reading when making its interest rate decisions.

However, those numbers will likely come as cold comfort to homeowners and homebuyers who have faced some sharp, inflationary increases.

StatsCan reports mortgage interest costs jumped by 11.4% in October – the biggest y/y increase since February 1991 (11.7%).  Property taxes also rose sharply, climbing 3.6% compared to 1.5% a year ago.

StatsCan’s “homeowners’ replacement cost index’, which relates to the price of new homes, dipped to 6.9% in October, down from 7.7% in September. This measure has been declining since May (11.1%).

Looking ahead to December 7th and the BoC’s last interest rate announcement for the year, most analysts expect one more 25 to 50 basis-point increase.


Bank of Canada Will Not Be Happy With This Inflation Report

General Robyn McLean 19 Oct

The latest facts and insight from Dr. Sherry Cooper, Chief Economist at Dominion Lending Centres.

Bank of Canada Will Not Be Happy With This Inflation Report
Canada’s headline inflation rate ticked down slightly last month to 6.9%, but measures of core inflation remain stubbornly high, and food prices hit a 41-year high. Lower gasoline prices were primarily responsible for the decline in inflation in the past three months. Bond markets sold off on the immediate release of the data this morning, taking the 2-year yield on Government of Canada bonds to over 4%. This is the last major data release before the Bank of Canada’s policy rate announcement next Wednesday, October 26, which puts the potential for a 75-bps hike back in play. At the very least, the Bank will take the overnight rate up 50 bps to 3.75%, but I wouldn’t rule out another 75-bps move. Judging from experience, we may see a nod in that direction by Governor Macklem before the Governing Council meets.

Excluding food and energy, prices rose 5.4% year-over-year (y/y) in September, following a gain of 5.3% in August. Prices for durable goods, such as furniture and passenger vehicles, grew faster in September compared with August. In September, the Mortgage Interest Cost Index continued to put upward pressure on the all-items CPI Canadians renewed or initiated mortgages at higher interest rates.

Monthly, the CPI rose 0.1% in September. On a seasonally adjusted monthly basis, the CPI was up 0.4%.
Average hourly wages rose 5.2% on a year-over-year basis in September, meaning that, on average, prices rose faster than wages. The gap in September was larger compared with August.

In September, prices for food purchased from stores (+11.4%) grew faster year-over-year since August 1981 (+11.9%). Prices for food purchased from stores have increased faster than the all-items CPI for ten consecutive months since December 2021.

Contributing to price increases for food and beverages were unfavourable weather, higher prices for essential inputs such as fertilizer and natural gas, and geopolitical instability stemming from Russia’s invasion of Ukraine.

Food price growth remained broad-based in September. On a year-over-year basis, Canadians paid more for meat (+7.6%), dairy products (+9.7%), bakery products (+14.8%), and fresh vegetables (+11.8%), among other food items.

Bottom Line

Price pressures might have peaked, but today’s data release will not be welcome news for the Bank of Canada. There is no evidence that core inflation is moderating despite the housing and consumer spending slowdown. The average of the Bank’s favourite measure of core inflation remains stuck at 5.3%. Combined with the Governor’s recent harsh rhetoric, the high probability that the Fed will hike rates 75 bps at the next Federal Open Market Committee Meeting and the weak Canadian dollar, there is no doubt the Bank will increase their overnight policy target to at least 3.75%, and could well go the full 75 bps to 4.0% next week. I would bet that they will not quit there, with further hikes to come in December and next year by central banks worldwide.

The Government of Canada yield curve is now steeply inverted, reflecting the widely held expectation that the economy is slowing. The prime rate will increase sharply next week, increasing variable mortgage rates again. Fixed mortgage rates will rise as well, but not by as much, continuing a pattern we’ve seen since March when the Bank of Canada began the current tightening cycle. We are unlikely to see a pivot to lower rates in the next year as inflation pressures remain very sticky.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres