Weekly Digest

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February 10th, 2025 – February 23rd, 2025

Canadian Inflation Rate

The GST holiday meant that headline inflation remained below the 2% target in January, but there is clear evidence that underlying inflation pressures are building. The latest headline reading increased to 1.90% up from 1.80%. With Tariff threats looming, this is changing the forecast for Bank of Canada rate adjustments.  

• 1.9% y/y (prior: 1.8%) 
• 0.1% m/m (prior: -0.4%) 

Bank of Canada Meeting – March 12th

Based on the above, the data justifies a BoC pause. The decision is now heavily dependent on Trump’s tariff plans.

The latest odds:

For the Bank of Canada meeting on Mar. 12:

• 25 bps cut: 32% chance
• No change: 68% chance

For the Federal Reserve meeting on Mar. 19:

• 25 bps cut: 2% chance
• No change: 98% chance

Blanket Tariffs On Hold

Although President Trump has hit pause on tariffs on Canada until March 1st, his communications suggest he still wants a broader agreement on various trade issues. Given the chaotic political situation in Canada, it seems unlikely that such an agreement can be made in just one month, raising the risk that Canada will face rolling tariff threats for the foreseeable future.

There is now an executive order imposing 25% tariffs on all imports of steel and aluminum. Canada accounts for 20% of all imports entering the US for these products.

This should have limited impact on the Canadian economy given that exports of these products account for just 1% of GDP. With President Trump also beginning to change his tune on a 10% universal tariff, we doubt Canadian policy makers implement retaliatory measures at this time.

The next Tariff threats are on motor vehicles, semiconductors, pharmaceuticals and lumber. Motor vehicles would be particularly damaging for Canada, as this accounts for 10% of our goods exports to the US.

US Inflation Numbers

US inflation is becoming a concern again.

• Headline CPI (m/m): 0.5% (est. 0.3% | prior 0.4%)
• Headline CPI (y/y): 3.0% (est. 2.9% | prior 2.9%)
• Core CPI (m/m): 0.4% (est. 0.3% | prior 0.2%)
• Core CPI (y/y): 3.3% (est. 3.1% | prior 3.2%)

“One can no longer dismiss the odds that not only is the Fed on hold now indefinitely, but that the next move could well be a rate hike,” economist David Rosenberg said.

Canadian Employment Numbers

• Unemployment fell to 6.6% (est. 6.8% | prior 6.7%)
• Job growth was +76k (est. 25k | prior: 91k)
• Wage growth for permanent workers fell to 3.7% (prior 3.8%)

January Home Sales Data

After dipping in December, Canadian home sales continued to underperform in January. Meanwhile, listings unexpectedly jumped 11% (136,000) the biggest monthly increase since the late 1980s that was outside of the pandemic.

Highlights:

• Listings heavily increased.
• Seasonally adjusted sales rose 1.7%y/y but fell 3.3% m/m.
• Fewer sales and more listings drove inventory back up to 4.2 months’ worth (the five-year average is 3.3).
• The national average home price dipped to an 11-month low of $670,064, while Canada’s benchmark price has now flatlined for a year.

Rental Demand & Pre-Construction

The worsening rental demand outlook will put off investors looking to purchase apartments for rental purposes. This would weigh on housing starts, since many developers depend on pre-construction sales to secure financing. Data for the Greater Toronto Area (GTA) shows homebuilders have responded to historically low new home sales by reducing starts.

Can it get any worse for pre-construction condos right now?

Fast Facts

• 3,080,000 Tonnes – The amount of aluminum that Canada sent to the U.S. in 2023, over half of America’s total aluminum imports.
• $4.30 USD per pound – Price that arabica coffee futures traded for in New York last week amid shortage fears, a new record. Prices have hit new highs for 13 straight sessions. 
• 136,000 – Homes put up for sale in Canada last month, an 11% increase from December. Experts say sellers rushed to list their homes ahead of an expected surge in buyers.
• $30,000 – the amount offered to all passengers on Delta’s crashed flight with “no strings attached.”