Great News On The Inflation Front

The Consumer Price Index (CPI) rose 2.8% year-over-year in February, down from the 2.9% January pace and much slower than the 3.1% expected rate. Gasoline prices rose in Canada for the first time in five months, which led many analysts to forecast a rise in February inflation as seen in the US. However, offsetting the increase in gas prices was a deceleration in the cost of cellular services, food purchased from stores, and Internet access services.

Excluding gasoline, the headline CPI slowed to a 2.9% year-over-year increase in February, down from 3.2% in January. Prices for rent and the mortgage interest cost index continued to apply upward pressure on the headline CPI.

On a monthly basis, the CPI rose 0.3% in February, the same as in January. The most significant contributors to the monthly increase were higher travel tours and gasoline prices.

Great News On The Inflation Front

On a seasonally adjusted monthly basis, the CPI rose 0.1% in February.

Prices for food purchased from stores continued to ease year over year in February (+2.4%) compared with January (+3.4%). Slower price growth was broad-based, with prices for fresh fruit (-2.6%), processed meat (-0.6%), and fish (-1.3%) declining. Other food preparations (+1.4%), preserved fruit and fruit preparations (+4.0%), cereal products (+1.7%), and dairy products (+0.6%) decelerated in February.

February was the first month since October 2021 that grocery prices increased slower than headline inflation. The slower price growth is partially attributable to a base-year effect, as food purchased from stores rose 0.7% month over month in February 2023 due to supply constraints amid unfavourable weather in growing regions and higher input costs.

While grocery price growth has been slowing, prices continue to increase and remain elevated. From February 2021 to February 2024, prices for food purchased from stores increased by 21.6%.

The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed two ticks to 3.2% in February, and the median also declined two ticks to 3.1% from year-ago levels, as shown in the chart below.

Bottom Line

The next meeting of the Bank of Canada Governing Council is on April 10. Before then, we will see two more important data releases:

1. The Bank of Canada Business Outlook Survey and Canadian Survey of Consumer Expectation and;
2. The Labour Force Survey for March.

Neither of these reports will likely derail the central bank’s move to cut interest rates by the June 10 meeting. Indeed, they could begin to cut rates at the April meeting. This would no doubt trigger a whopping Spring housing market, which is likely to be strong. There is significant pent-up demand for housing, and the prospect of home price increases could well move buyers off the sidelines if a surge in new listings comes to fruition.

Great News On The Inflation Front

The Canadian economy is particularly interest rate sensitive because of the vast volumes of mortgages that will be renewed in the next two years. Mortgage delinquency rates are already rising, so a gradual decline in interest rates is welcome news.

As the chart below shows, the three-month rolling average growth rates for the CPI trim and median core measures averaged 2.2% in February–their lowest reading in three years.

According to the Royal Bank economists, “Building on the January CPI report that was already showing broad-based easing in price pressures in Canada, the February report today reaffirmed those trends. Different measures of core inflation decelerated, and the diffusion index that measures the scope of inflation pressures also improved. That measure, however, was still showing slightly broader price pressures than pre-pandemic “norms”, suggesting there’s still room for more improvement.”

With the economy’s slow growth trajectory, the central bank has every reason to begin cutting interest rates soon.

Great News On The Inflation Front

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Great News On The Inflation Front

February data bode well for a strong spring housing market

The Canadian Real Estate Association announced today that national home sales dipped 3.1% m/m in February while home prices were flat, ending a five-month price decline that began last fall.

It was noteworthy that prices remained unchanged from January to February, given that they dropped 1.3 from December to January. The MLS Home Price Index tends to be relatively stable, so a shift in pricing behaviour this large is quite unusual. It has happened only three other times in the past two decades. All three times were in the past four years when demand was poised to rise sharply: May 2020, right after the initial COVID slump; January 2022, before interest rates were increased; and April 2023, when people thought the Bank of Canada would continue to pause. The rebound in home sales in 2023 led the central bank to hike interest rates two more times.

There is significant pent-up demand for housing owing to strong population growth and first-time homebuyers’ fears that prices will rise sharply once the Bank of Canada cuts interest rates.

New Listings

The number of newly listed homes edged up 1.6% m/m in February. Depending on how many owners prepare to list their properties for sale this spring, gains may rise in the months ahead.

“After two years of mostly quiet resale housing activity, there’s a feeling that things are about to pick up,” said Larry Cerqua, Chair of CREA. “At this point, it’s hard to know whether buyers are going to wait for a signal from the Bank of Canada or whether they’re just waiting for the spring listings to hit the market.

February data bode well for a strong spring housing market

With sales edging down and new listings inching up in February, the national sales-to-new listings ratio eased a bit to 55.6%. The long-term average is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets, respectively.

At the end of February 2024, there were 3.8 months of inventory nationwide, up slightly from 3.7 months at the end of January. The long-term average is about five months of inventory.

Bottom Line

With pent-up demand for housing rising with every rent increase, the spring housing season is likely to be robust, even before the central bank cuts interest rates. We believe the BoC will begin reducing the policy rate in June. Tomorrow, we will get the CPI data for February. The US CPI data for February, released last week, were disappointing as gasoline prices increased headline inflation and core measures remained well above 3%.

February data bode well for a strong spring housing market

Questions, Comments, Reach out:

📲 705-606-2727

📧 jmuir@dominionlending.ca; jon@jonmuirmortgages.ca

💻 https://jonmuirmortgages.ca

🌎 https://g.page/r/CXZmhubK7M5xEAE

Dominion Lending Centers – The Mortgage Source. Independently Owned and Operated.

License #: 10145

92 Caplan Ave #609, Barrie, ON L4N 9J2

February data bode well for a strong spring housing market

February Job Gains Double Forecast As Unemployment Rate Ticks Up

Today’s StatsCanada Labour Force Survey for February was a mixed bag and shows the dramatic effect of surging immigration. Canadian employment rose by a much stronger-than-expected 41,000, dominated by a 71,000 rise in full-time jobs.

The employment rate–the proportion of the population aged 15 and older who are employed–fell a tick to 61.5%. This is the fifth consecutive monthly decline, the most extended period of consecutive decreases since the six months ending in April 2009 during the global financial crisis. The Bank of Canada has emphasized the importance of the employment rate in recent commentary.

February Job Gains Double Forecast As Unemployment Rate Ticks Up

The employment rate in February 2024 was down 0.9 percentage points from the recent peak of 62.4% observed in February 2023. This downward trend is associated with the unprecedented ballooning of the working-age population.

The unemployment rate increased 0.1 percentage points to 5.8% in February, offsetting the decline in January. The unemployment rate has held relatively steady in recent months, at 5.8% for three of the past four months. This follows an upward trend from April 2023 to November 2023, when the rate increased from 5.1% to 5.8%. The labour force participation rate—the proportion of the population aged 15 and older who were employed or looking for work—held steady at 65.3% in February.

The labour force jumped 76,000 last month and is up more than 550,000 in the past year, while the adult population has surged by more than 1 million people (+3.2%), compared with a job increase of 368,000. Even very strong job growth is not keeping up with the torrid influx of new workers, dampening wage inflation.

February Job Gains Double Forecast As Unemployment Rate Ticks Up

Most of the new jobs were in the service sector, led by employment in accommodation and food services following a decline in the prior month. Also rebounding was employment in professional, scientific, and technical services. On a year-over-year basis, employment in this industry was up 85,000 (+4.6%), the second-largest year-over-year increase among industries, after transportation and warehousing (+104,000; +10.6%).

In February, average hourly wages were up 5.0% year-over-year, following an increase of 5.3% in January. This is still above the Bank of Canada’s comfort zone, although policymakers suggested that wage inflation appeared to have peaked in this week’s policy statement.

Bottom Line

We will see one more Labour Force Survey on April 5th before the Bank of Canada meets again on April 10th. The all-important CPI inflation data will be released on March 19th.

Today’s report, while strong, suggests that the surge in the working-age population and the decline in job vacancies could continue to temper wage inflation. The Bank of Canada will need more proof before it releases the brakes and lowers interest rates.

February Job Gains Double Forecast As Unemployment Rate Ticks Up

Questions, Comments, Reach out;

📲 705-606-2727

📧 jmuir@dominionlending.ca; jon@jonmuirmortgages.ca

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🌎 https://g.page/r/CXZmhubK7M5xEAE

Dominion Lending Centers – The Mortgage Source. Independently Owned and Operated.

License #: 10145

92 Caplan Ave #609, Barrie, ON L4N 9J2

February Job Gains Double Forecast As Unemployment Rate Ticks Up

The Bank of Canada Holds Rates Steady Until Core Inflation Falls Further

Today, the Bank of Canada held the overnight rate at 5% for the fifth consecutive meeting and pledged to continue normalizing the Bank’s balance sheet. Policymakers remain concerned about risks to the outlook for inflation. The latest data show that CPI inflation fell to 2.9% in January, but year-over-year and three-month measures of core inflation were in the 3% to 3.5% range. The Governing Council projects that inflation will remain around 3% over the first half of this year but also suggests that wage pressure may be diminishing. The likelihood is that inflation will slow more rapidly, allowing for a rate cut by mid-year. 

The Bank also noted that Q4 GDP growth came in stronger than expected at 1.0% but was well below potential growth, confirming excess supply in the economy.

The Bank of Canada Holds Rates Steady Until Core Inflation Falls Further

Employment continues to rise more slowly than population growth. During the press conference, Governor Macklem said it was too early to consider lowering rates as more time is needed to ensure inflation falls towards the 2% target.

Bottom Line

The Bank of Canada expects that progress on inflation will be ‘gradual and uneven.’ “Today’s decision reflects the governing council’s assessment that a policy rate of 5% remains appropriate. It’s still too early to consider lowering the policy interest rate,” Macklem said in the prepared text of his opening statement. The Bank is pushing back on the idea that rate cuts are imminent.

High interest rates are dampening discretionary spending for households renewing mortgages at much higher monthly payments. As the economy slows in the first half of this year, the BoC will signal a shift towards easing. This could happen at the next meeting on April 10, when policymakers update their economic projections. This could prepare markets for a June rate cut.

“We don’t want to keep monetary policy this restrictive longer than we have to,” Macklem said. “But nor do we want to jeopardize the progress we’ve made in bringing down inflation.”

The Bank of Canada Holds Rates Steady Until Core Inflation Falls Further

Questions, Comments, Reach out:

📲 705-606-2727

📧 jmuir@dominionlending.ca; jon@jonmuirmortgages.ca

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Dominion Lending Centers – The Mortgage Source. Independently Owned and Operated.

License #: 10145

92 Caplan Ave #609, Barrie, ON L4N 9J2

The Bank of Canada Holds Rates Steady Until Core Inflation Falls Further

Still No Recession In Canada

Real gross domestic product (GDP) rose a moderate 1.0% (seasonally adjusted annual rate), a tad better than expected and the Q3 contraction of -1.2% was revised to -0.5%. This leaves growth for 2023 at a moderate 1.1%. Monthly data, also released today by Statistics Canada, showed that December came in flat, well below the robust flash estimate, while the January preliminary estimate was a strong +0.4% (subject, of course, to revision). The January uptick was driven by the return of Quebec public servants and a mild winter.

The fourth quarter growth was fuelled by higher oil exports and was moderated by a significant decline in business investment. Housing investment declined again in Q4–a sixth decline in the last seven quarters. Despite increased activity in Q4 new residential construction and renovations, it was more than offset by a large drop in home ownership transfer costs, reflecting the weakening resale market across Canada. Single-family units and apartments led the rise in new construction, as all provinces and territories, except Prince Edward Island, post a rise in housing starts.

Still No Recession In Canada

Investment in non-residential structures fell sharply, as did spending on machinery and equipment, especially on aircraft and other transportation equipment. Even government spending declined.

Bottom Line

This is the last major economic release before the Bank of Canada meets again on March 6. The central bank will hold interest rates steady at next week’s meeting, and while some are suggesting the first rate cut this cycle will be as soon as the April confab, the consensus remains at June. With the uptick in growth in Q4, there is no urgency for the Bank to ease.

Policymakers will wait for their favourite core inflation measures to fall within the 1%-to-3% target band. They know that GDP per capita is falling and that mortgage renewals at higher interest rates will dampen household discretionary income. That’s why a June rate cut is widely expected.

Still No Recession In Canada

Questions, Comments, Reach Out;

📲 705-606-2727

📧 jmuir@dominionlending.ca; jon@jonmuirmortgages.ca

💻 https://jonmuirmortgages.ca

🌎 https://g.page/r/CXZmhubK7M5xEAE

Dominion Lending Centers – The Mortgage Source. Independently Owned and Operated.

License #: 10145

92 Caplan Ave #609, Barrie, ON L4N 9J2

Still No Recession In Canada