Could September’s CPI data impact the BoC’s next decision on October 28?
Canada’s annual inflation rate came in at 3.1% last month, a reading that some experts believe could keep the Bank of Canada on hold when it meets next week.
The consumer price index (CPI) climbed slightly over August, according to new Statistics Canada data, but analysts including Dominion Lending Centres Group (DLCG) chief economist Sherry Cooper say the rise likely wasn’t enough to justify an October hike.
“The September data support our base-case scenario that the Bank of Canada will remain on hold at its October 28 meeting,” Cooper said this morning. “Policymakers will continue to closely monitor incoming inflation data and stand ready to tighten policy if price pressures broaden and become more persistent.
“Still, for now, underlying inflation trends in Canada remain consistent with a patient, wait-and-see approach.”
Latest inflation reading ‘good news’: economist
A rate hold by the Bank of Canada would mean no change for variable mortgage rates, although five-year Government of Canada bond yields – which heavily influence fixed rates – have continued an unpredictable path and whipsawed over the past five days.
Those yields had ticked slightly higher at time of writing on Monday afternoon compared with the same time yesterday.
Still, National Bank of Canada (NBC) chief economist Stéfane Marion, speaking in a keynote address at the Mortgage Professionals Canada (MPC) conference in Calgary, described the latest inflation reading as a positive one for the mortgage market.
“Good news this morning – inflation came out, it’s not dramatic,” he said. “Core inflation is still at 2%. I don’t think that the Bank of Canada should be hiking next week, and if they do hike, they can’t be too aggressive.”
CPA Canada chief economist David-Alexandre Brassard also sees the latest reading keeping rate hikes off the table this month. “For now, there is still no clear-cut reason for the Bank of Canada to move interest rates in either direction, as both risks [a weakening economy and rising inflation] are working against one another,” Brassard said.
And he hinted that a further dramatic spike in rates looks unlikely at this stage. “I think most of the increase that we’ve seen in interest rates is behind us,” he said. “And if we’re right, it sets the stage for a normalization going into next year.”
Inflation on the rise, but sluggish economy isn’t picking up
While inflation has been ticking upwards in recent months, the economy has remained sluggish – with some forecasts indicating a further slowdown could be in store.
The Canadian Federation of Independent Business (CFIB), which represents 103,000 small and medium-sized firms, said in its latest Main Street Quarterly report that it sees Canada’s overall GDP growth slowing again in the fourth quarter.
The latest inflation increase was spurred, unsurprisingly, by another surge in fuel oil and other fuel costs, which soared by 57.8% amid continuing price pressures from the war in Iran.
Homeowners’ home and mortgage insurance costs rose by 4.9% compared with the same time last year, while homeowners’ maintenance and repairs costs also moved higher (by 1.2%).
For now, the rate outlook remains uncertain for scores of buyers, particularly with the mortgage renewal wave still going strong.
Speaking with Canadian Mortgage Professional, Haventree Bank president and chief executive officer Fern Glowinsky (pictured below) said mortgage brokers are coming to the fore in that environment.
“I think if there’s a good option in front of the borrower right now for a longer period of time, that’s a good call,” she said. “I think if you can find an offer that lines up with affordability and structure for you that takes you through this period of uncertainty, it’s probably a good idea – because over time, things will settle down.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
