Weekly Digest

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May 22nd, 2024

Inflation Report

Headline inflation rate is down to 2.7%. The drop was helped by a 0.2% m/m fall in food prices, which offset some of the rise in gasoline prices. With gasoline prices falling in May, there will be more downward pressure on the headline rate in the coming months. Headline inflation looks on track to average 2.6% in the second quarter, lower than the Bank’s forecast from the April Monetary Policy Report of 2.9%.

Excluding mortgage interest (the current dominate inflation driver), average core inflation is 1.6% and headline inflation is down to 1.2%!

Core inflation at 2.70% may give the Bank confidence that the further easing is being sustained. That progress means there is a strong possibility of a June rate cut, although the continued resilience of the labour market means the Bank maybe equally comfortable waiting until the July meeting, allowing it to observe two more months of inflation data.

To Cut or Not to Cut?

• Capital Economics – “Despite the continued progress, the Bank of Canada may hold off on cutting interest rates in June, in order to confirm that lower core inflation will be sustained in the next two CPI releases ahead of the July meeting.”

• National Bank – “By maintaining such a restrictive monetary policy, it risks inflicting unnecessary damage on the economy,”

• Scotiabank – “The prudent choice, and in keeping with prior B.o.C guidance, would be July,” says Derek Holt.

• CIBC – “Today’s data should have provided the all clear on the inflation front that the Bank of Canada needed to start cutting interest rates in June.”

Who do you believe?

Economic Softening

The further evidence of softer activity this week might not be enough to persuade the Bank of Canada to cut interest rates in June, but they add to our sense that rate cuts are coming very soon.

The recent data suggest that the economy lost steam heading into the second quarter. This week we learnt that manufacturing and wholesale sales volumes fell sharply in March.

Employment – CAD

Housing Stats

New listings rose by 3.8%, although it’s probably too soon to suggest that had anything to do with the change to capital gains taxes on second properties in Budget 2024 in mid-April. Deadline to sell and close is June 24th.

House prices did better in April, stabilizing after falling by 0.2% in March, but the major development is that the sales-to-new listing ratio is no longer consistent with positive house price inflation.

What about seasonality?

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 5.24%

• 3 year fixed, 30 yr amortization – 5.44%

• 2 year fixed, 30 yr amortization – 6.20%

• 5 year variable, 30 yr amortization – Prime – 0.90% = 6.30%

• 5 year fixed, 25 yr amortization – 5.19%

• 3 year fixed, 25 yr amortization – 5.34%

• 2 year fixed, 25 yr amortization – 6.10%

• 5 year variable, 25 yr amortization – Prime – 1.00% = 6.20%

INSURED

• 5 year fixed, 25 yr amortization – 4.79%

• 4 year fixed, 25 yr amortization – 4.84%

• 3 year fixed, 25 yr amortization – 4.89%

• 5 year variable, 25 yr amortization – Prime – .90% = 6.30%

Fast Facts

• $6,000,000 – The fine that FinTRAC handed out to crypto exchange Binance, the first penalty levied by the anti-money laundering agency against a digital currency trading platform.

• US$1.4 billion – The projected growth in profits from digital cameras between now and 2028, as more Gen Z’s opt for unfiltered experiences that don’t require phones.

• 4,100,000 – people took a Via Rail train last year, a 25% jump from 2022. The company’s operating loss still grew by 8% to $382,000,000.

• 30% – the number of federal employees who saw errors in their pay as of last year because of Phoenix, a payroll system. It has has cost the government ~$4 billion.