INFLATION RELIEF?

A Summary of the June 27, 2023 Report

The most recent Consumer Price Index (CPI) report came out today (June 27). This report is important as the Bank of Canada is closely monitoring the rate of inflation and uses, in part, these figures when determining whether to increase or hold their overnight lending rate.

Here are some key takeaways:

1. Inflation slowed overall to 3.4% year over year, compared to last month’s 4.4%. The Bank of Canada uses several core measures of inflation. Their preferred method is the 3-month core measure (vs the year over year mentioned above). The 3-month core measure has also dropped and is now sitting at 3.6%. While this is good news, there is more work to be done to bring inflation back to the Bank’s target of 2%.

2. Energy prices are the primary factor for the overall reduced inflation. Year over year, energy prices have declined by 12.4%. Prices spiked last spring and summer due to Russia’s invasion of Ukraine – we are now beginning to see prices stabilize.
   
   
3. Despite positive updates, there were areas of concern:
   – Food Prices have risen 9%. This is not shocking as it is something that we are all experiencing at the grocery store. Interestingly, the Competition Bureau has just released a report stating that Canada needs more grocery businesses and that the lack of competitiveness is a driving factor behind high prices. This report highlights policies that it recommends to boost competition. Unfortunately, this will take time and will not be an immediate change for consumers
   – The Mortgage Cost Index shows that housing inflation is increasing at a rapid pace. A 29.9% increase year over year is eye watering for many of us. Mortgage interest costs are the main culprit for this and I know that I am not the only one who feels this pain. Also adding to housing costs are increased rental payments.

Fixed Rate Update

Canadian Bond Yields have been increasing as of late. This does impact fixed rate offerings from lenders. As the yield spikes, so too do the rates that lenders will offer. At this time of this writing, bond yields have nearly caught up to the peak that we saw in the fall of 2022.

The next important report due is the Labour Force Survey which comes out July 07. If unemployment levels increase, there is a chance that the bond yields will not pass the previous high of last fall. 

Will the Prime Rate Increase?

The big question on everyone’s minds is whether or not the Bank of Canada will increase its overnight lending rate at its next meeting (July 12). As it stands, economists are saying that there is a 57% chance of an increase. Short answer is that no one truly knows and these decisions are heavily based on the economic reports as they come out.

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