BANK OF CANADA INTEREST RATE AND INFLATION TRENDS
As you may already know, on June 7th, 2023, the Bank of Canada raised the policy interest rate by 25 basis points to 4.75%. This adjustment was made to maintain stability and manage inflationary pressures.
The anticipated July 12th, 2023, interest rate announcement is coming!
Statistics Canada recently released the monthly inflation numbers for May, revealing a decrease in the inflation rate from 4.4% in April to 3.4%. The attached chart illustrates the inflation trend, showing a peak in June 2022 followed by a gradual decline. However, it's important to note that in April 2023, there was a slight increase of 0.1% from 3.3% to 3.4%, contributing to the decision to raise rates during the previous announcement.
Nathan Janzen, the assistant chief economist at RBC, attributes the declining inflation rate to the difference in energy price trends compared to the previous year. Energy prices were down 12.4% year-over-year in May. Janzen explains that the price increases from the Spring and Summer of 2022, following Russia's invasion of Ukraine, are no longer included in the annual inflation data; the year-to-year price growth is diminished. On the other hand, grocery price inflation remained elevated, rising 9.0% year-over-year, with minimal change from April.
Economists hold differing views on the impact of these inflation metrics. While they acknowledge that all inflation metrics remain well above the two percent target the Bank of Canada set, they also note that the recent data did not align with economists' expectations. Some experts, including Benjamin Reitzes from BMO and Randall Bartlett from Canadian Economics, believe that the Bank of Canada may "wait a little longer" before considering another interest rate hike.
The drop in the inflation rate to 3.4% in May is a positive sign and suggests a trend in the right direction. Consequently, it appears less likely that we will see another rate hike in July. Holding rates at 4.75% will contribute adequately to slowing down the inflation rate.
The real estate market has responded to the higher interest rates, with buyers adopting a more cautious approach and inventory levels gradually increasing. However, it's important to note that we are still experiencing a seller's market, indicating favourable conditions for sellers.
Please feel free to contact me with any questions or concerns. As always, I am here to provide you with personalized guidance based on your specific real estate needs.