First National Financial LP®

Residential Market Commentary - Lingering inflation pressures

  • First National Financial LP

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.