As expected the Bank of Canada increased its benchmark policy rate for an 8th straight setting.  It now stands at 4.50%.  The 25 basis-point boost was the smallest in this vigorous cycle which started pushing up rates back in March 2022.  This is being taken as a sign that the central bank is satisfied with its effort to fight inflation.

During his news conference after the rate announcement Bank of Canada Governor Tiff Macklem said there will be a “pause” in rate hikes while the Bank assesses its strategy so far.  But he cautioned it is a “conditional pause”.

“…  it is conditional on economic developments evolving broadly in line with our … outlook.” “If we need to do more to get inflation to the two-percent target, we will,” he said.

The interest rate increases have met with some success.  Inflation, as measured by the Consumer Price Index, has been dropping and now sits at 6.3%, down from the peak of 8.1% back in June.

In its Monetary Policy Report the Bank now says it expects to see inflation at 3.0% by the end of this year, and dropping to 2.0% in 2024.

That led to repeated questions about possible rate cuts.  But Macklem pushed back on the idea every time.

“Let’s keep in mind that inflation’s still over six-percent,” he said. “Inflation’s coming down, but we do have to be humble; there are a number of risks out there…. So, it’s really far too early to be talking about cuts.”

The latest cost of living and employment numbers make it clear the Bank of Canada still has work to do in its fight against inflation.

The Consumer Price Index (headline inflation) did slow to 6.3% in December, from 6.8% in November, but it is still well above the Bank’s target rate of 2.0%.  Food and fuel continue to be the two biggest influencers.  Gasoline was down 13% compared to a month earlier but grocery store prices continued to rise at an annualized rate of 11%.

The Bank of Canada prefers to measure Core inflation when making its rate decisions.  Core inflation excludes, so-called, volatile items like food and fuel and is divided into three different types: CPI-common, CPI-median and CPI-trim.  Encouragingly, the average of those three measures slowed to 5.3% in December, down from 5.4% in November.  Higher shelter costs, including rising mortgage rates and increasing rents, were key components in the Core inflation calculations.

The Canadian economy added a stunning 104,000 jobs in December.  That was more than 20 times the 5,000 that had been forecast.  The unemployment rate fell to 5.0%.  The job growth and the inflation numbers suggest the economy is still quite strong.

It is all but certain there will be another increase to the BoC Policy Rate on Wednesday.  Most market watchers expect a quarter-point hike to 4.50%.

And on a hopeful note, the economic think-tank The Conference Board of Canada is forecasting that inflation will be back inside the BoC’s target range of 1% to 3% by the end of this year.

Canada’s big cities are getting bigger and more expensive even as tens-of-thousands of people leave them, for more affordable lifestyles elsewhere.  A key factor in the expense and the migration is the cost of housing.

According to Statistics Canada nearly 100,000 people left the Toronto area in the 12-month period from July 1, 2021 to July 1, 2022.  Most of those people, 78%, stayed in Ontario.  The Montreal area saw an exodus of 35,000 people and 14,000 peopled exited Vancouver.

It is probably no surprise that Canada’s biggest cities come with the highest housing (or accommodation) costs.  As people are leaving they are more than being replaced by new arrivals from outside the country.  The data show that newcomers prefer large urban centers over rural areas.  The country’s biggest areas of population gained 600,000 people through international migration with nearly 220,000 going to Toronto alone.  By contrast, just 21,000 chose to settle in smaller centers.

Numbers crunched by the real estate web service Point2 show that, apart from Toronto itself, eight of the country’s highest priced cities are in the Greater Toronto/Hamilton Area.  Oakville tops the list with average costs of nearly $2,400 a month for homeowners and almost $2,150 a month for renters.

With the exception of Montreal, cities in Quebec dominated the list of lowest priced housing and rental accommodation in Canada.  Trois-Rivières came in as most economical with average monthly homeowner costs of less than $960, and less than $680 for renters.

Published by First National Financial LP

The Bank of Canada has offered only the slightest hint about what it plans to do next.  In the statement that accompanied last week’s 50 basis-point increase in the Policy Rate the Bank said it “will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target.”

That is a softening of the language on pending rate hikes that was used in previous statements, but it gives the Bank some wiggle room to continue with increases or stand pat and wait to see what the economic data shows.

At the same time the Bank wanted to be clear that it has not lost sight of its goal of taming inflation.

“We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians,” the Bank said.

That tone was reinforced by the Bank’s Deputy Governor Sharon Kozicki, in a speech one day after the rate announcement.

“If we are surprised on the upside, we are still prepared to be forceful.”

“But we recognize that we have raised interest rates rapidly and that their effects are working their way through the economy,” Kozicki said.

Inflation is running at nearly 7% in Canada and there are early signs it is moderating.  The Bank’s trend-setting overnight rate is now at 4.25%.  The next rate announcement is set for January 25, 2023.

Published by First National Financial LP

With inflation running at generational highs and interest rates on the rise many debt-strapped Canadians are struggling to reorganize their finances.

A recent survey sponsored by FP Canada (an organization that represents and promotes professional financial planners) suggests “unconscious spending” can be an obstacle to a sound, workable household budget.

Unconscious spending involves purchases that are made out of convenience or habit rather than with a view to budgets and long-term financial plans.  The use of credit cards is a central part of the issue.

The online poll indicates 28% of Canadians are using their credit cards more frequently.  Depending on their payment habits, credit card interest can be a significant expense.  It also shows 21% have increased their use of credit cards to pay for subscription services such as video streaming or cellphones.  Many also use credit cards to pay utility bills like electricity and gas.  This practice often means consumers aren’t aware of price increases, or new or extra charges.

Other forms of unconscious spending include:

• Buying more than intended in order to take advantage of a perk, like free shipping
• Buying more than intended because it is “on sale”
• Greater use of buy now, pay later schemes

Advice for curbing unconscious spending:

• Develop a budget, stick to it and review it regularly
• Use good, old fashion cash to make purchases
• Limit the use of credit cards for on-going, routine payments

Published by First National Financial LP