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Canada’s Inflation Rate Rises To 2.9% In March

This morning, Statistics Canada (StatCan) published its anticipated March inflation report. The Consumer Price Index (CPI) rose 2.9% on a year-over-year basis in March, up from a 2.8% gain in February.

Economists had predicted that the Consumer Price Index (CPI) would tick up in March thanks, in part, to an increase in gasoline prices. Gasoline prices indeed contributed the most to the acceleration, as prices at the pump rose faster in March compared with February. Excluding gasoline, the all-items CPI slowed to a 2.8% year-over-year increase, down from a 2.9% gain in February.

Last month, the annual pace of inflation cooled to 2.8% in February compared with 2.9% in January. For March, it was expected by analysts that this figure would hit 3.1%.

Shelter prices continued to apply upward pressure in March, with the mortgage interest cost and rent indexes contributing the most to the year-over-year gain in the all-items CPI, according to StatCan. Prices for services (+4.5%) continued to rise in March compared with February (+4.2%), driven by air transportation and rent, outpacing price growth for goods (+1.1%) which slowed compared with February (+1.2%) on a yearly basis.

On a monthly basis, the CPI rose 0.6% in March. Month-over-month price growth was broad-based. All eyes of those looking to enter the housing market were likely on the report, as it and its April figures will be highly influential in whether the central bank opts to lower its policy rate. The big question is whether the slight spike is enough for Canada’s central bank to change its direction on the interest rate front. Last week, the Bank of Canada held its key interest rate at 5%, but hinted that an interest rate cut could be on the horizon for June.

“Yes, it’s within the realm of possibilities,” Macklem said at a press conference on Wednesday, when asked by a reporter about the likelihood that the Bank will lower its policy rate at its next meeting, slated for June 5. “I think we’ve been pretty clear, we are encouraged by what we’ve seen since January. If you look at our indicators, they’re not all progressing at the same speed, but they’ve all been moving in the right direction: inflation has come down, core inflation has come down, the more timely three month measures of core inflation suggests there’s downward momentum.”

The report comes in advance of the release of the federal government’s budget later this afternoon. Front and centre in the budget is Canada’s housing crisis, with Trudeau’s government fresh from a slew of housing announcements last week that involved everything from 30-year mortgages for some first-time homebuyers, to a promise to fix the growing encampment problem.

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Toronto Condo Segment Tightens in Q2, With Rents ‘Well Outpacing’ Inflation

Toronto’s condo market continued to tighten in the second quarter of 2023, according to new data from the Toronto Regional Real Estate Board (TRREB), with sales up “strongly” year over year and new listings once again failing to keep pace.

More specifically, TRREB reports that there were 6,844 total condominium apartment sales in the quarter, up over 20% year over year. In contrast, new condo listings were down by more than 13%.

“This divergence between condo sales and listings also meant that active listings at the end of Q2 2023 were down by 8% compared to the end of Q2 2022,” notes the report.

TRREB President Paul Baron attributes the rise in sales to “an extremely competitive rental market.” Still, he says, “average condo selling prices remain below last year’s levels, which has helped from an affordability perspective.”

Condos in the GTA sold for an average of $737,868 in Q2, and that price was down 4.2% compared to the second quarter of 2022. Zeroing in on the City of Toronto — which accounted for two-thirds of total condo sales — the average selling price was $769,616, down 3.3% from Q2 2022.

“As sales increase relative to the number of listings available, expect condo prices to trend upward in the months ahead,” cautions Baron.

“Encouraging” Growth In Condo Rental Listings
A separate TRREB report, also released Thursday, shows that average condo apartment rents continued to “well outpace” the rate of inflation in the second quarter of the year, which is a continuation of a two-year-long trend.

At $2,532, the average one-bedroom condo apartment rent grew 11.6% from Q2 2022. In a similar fashion, the average rent for a two-bedroom climbed 9.2% to $3,264.

Over the same Q2 2022 to Q2 2023 period, the number of condominium apartment rentals reported through TRREB’s MLS® System, at 13,935, saw a 5.4% uptick, while the number of condo apartments listed for rent grew by a greater annual rate of 15.4%.

“Despite seeing an increase in the number of units listed for rent, competition between renters remained very strong. This competition underpinned higher average rents,” explains the report.

Still, TRREB Chief Market Analyst Jason Mercer says the growth in new condo rental listings was “encouraging to see.”

“If this is sustained over the longer term, the pace of rent growth will slow,” Mercer continues. “However, it will take some time to make up for the rental housing deficit that has built up over the last number of years. It will be key to see more purpose-built rental units come online to augment investor-owned condominium apartments which have accounted for most of the new rental stock in the GTA over the past decade.”

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Canada inflation rate hits 13-month low

Annual price growth is now at its lowest level since January 2022

The annual pace of inflation in Canada cooled again in February, with a 5.2% year-over-year increase in the consumer price index meaning it is now at its lowest level since January last year.

New figures released by Statistics Canada on Tuesday morning showed that yearly price growth declined at a faster clip than anticipated in its most rapid slowdown for nearly two years.

April 2020 was the last time the inflation rate fell so decisively, with February’s decline in price growth bringing it close to last January’s figure of 5.1%.

The main reason for last month’s slower rate was the fact that prices had spiked at the same time last year, StatCan said, as the global economy was rocked by Russia’s invasion of Ukraine.

Energy prices ticked down by 0.6% on a yearly basis in February and gasoline prices declined by 4.7%, although grocery price growth continued to surge – by 10.6% year over year.

Price growth with food and energy inflation removed was 4.8% over the same time last year, according to StatCan, slightly down from 4.9% in January.

The news is likely to be seen by the Bank of Canada as a further sign that its rate increases over the past year are having their desired effect, and could mean that the central bank opts once again to hold its policy rate steady in April.

In its first two rate announcements of the year, the Bank has been open about the possibility of leaving rates where they are for the foreseeable future if economic indicators continue to trend as expected.

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Inflation hits new three-decade high in Canada

Canada’s annual inflation rate surged to 6.7% in March, a new 31-year record and a higher figure than financial analysts had expected.

Statistics Canada announced that the country’s Consumer Price Index (CPI) rose by a full percentage point last month over February’s figure, surpassing Bay Street’s prediction that inflation in March would come in at 6.1%.

That news comes a week after the Bank of Canada announced an oversized rate hike following its April policy rate meeting, with that half-percentage-point increase taking the central bank’s trendsetting interest rate to 1.0% after remaining steadfastly low at 0.25% throughout the COVID-19 pandemic.

Wednesday’s StatCan announcement indicated that prices had risen in each of the eight categories tracked by its data. Transportation costs posted a particularly noteworthy 11.2% increase over last year, spurred by a rise in gasoline costs of nearly 40% since the previous March.

Homeowner replacement costs ballooned by 12.9% compared with the same time last year, with grocery store prices also recording an 8.7% year-over-year hike.

According to the agency, inflation had also worsened thanks to ongoing supply chain snarls, a feverish housing market and the continuing global crisis caused by Russia’s invasion of Ukraine.

Prince Edward Island posted the highest inflation figure among Canada’s provinces and territories, coming in at 8.9%. Second were Manitoba and New Brunswick at 7.4% each, with Ontario recording a figure of 7.0% and Quebec coming in at 6.7%.

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Inflation forecast Canada 2021-2022

Inflation in the Canadian economy has been on a steep increase since the start of 2021. Now as Canada begins to emerge from the COVID-19 pandemic, the hopes are for positive economic growth, however, it seems pandemic effects may stick around longer than most anticipated.

Pressure is now being put on the Bank of Canada to rein in rising inflation. The bank has held its position that high inflation is merely a “transitory” issue, though some are warning inflation may get worse before it gets much better.

What is the current inflation rate?
According to new figures from the CPI released this week, the current inflation rate in Canada reached a new high of 4.7% in October, in line with market expectations. While not the highest level in history, it’s the highest inflation rate Canada has seen since 2003 and is more than double the average pre-pandemic levels of about 2%.

This is up from about 1% at the start of the year and 4.1% in August. The U.S. has seen a similar spike in inflation, hitting above 6%. Central banks across the world are also reporting large growth in inflation.

What is the Consumer Price Index (CPI)?
The consumer price index is a means for measuring price increases in Canada and is the primary indicator used to determine inflation rates.

The CPI tracks the prices of eight major commodities in order to determine how the economy is inflating or deflating. Though various commodities may fluctuate in price, the broad selection of goods represents an average of Canadians’ household spending.

Eight commodity prices tracked by the CPI

  • Food
  • Shelter
  • Household operations, furnishing, and equipment
  • Clothing and footwear
  • Transportation
  • Health and personal care
  • Recreation, education, and reading
  • Alcoholic beverages, tobacco products and recreational cannabis

Each of these commodities is weighted in terms of relative importance. The CPI measures costs and applies an index value, the rate at which the index changes is expressed as the inflation rate. Monthly increases are projected out to find a hypothetical yearly rate, however, the rate rarely stays the same for a whole year.

Canadian inflation history
The last time Canadian inflation ran wild was in the 1970s and 80s when inflation rose as high as 14%. At that time, inflation was caused by a perfect storm of global economic conditions and failed governmental economic stimulation. This period of inflation during a recessionary period was known as Stagflation. Eventually, inflation was brought under control due in part to increased interest rates, and it gradually reduced until hovering around 2% for many years.

At the start of the COVID-19 pandemic, inflation actually dipped low for a brief period. From about March to May 2020, the CPI saw very low or no increases as markets faltered in response to new restrictions. The price of gas along with rent prices decreased, and travel expenses fell sharply.

However, as it became clear that difficult times were here to stay for the near future, prices in food, gasoline, housing and more began to rise as the difficulties in production and supply chains increased. Since then inflation has continued to tick up steeply.

What inflation means for Canadians
There is some contention in the understanding of inflation and how it can affect Canadians. Some people actually see high inflation as possibly a good thing and a natural consequence of an unbalanced economy. They also point to positives such as the fact that inflated money makes paying off past debts even easier as the purchasing power of the dollar goes down.

On the other side of things are the arguments against inflation. These include the fact that as inflation goes up, uninvested savings actually decrease in value. This is of particular concern for the millions of Canadians approaching retirement age who are now seeing their funds dwindle.

There is also the fact that inflation is rising faster than wages. Prices are up all over and the labour force is starting to demand more compensation for their work, causing labour shortages in some areas. Overall, a less healthy and more unstable economy can lead to all sorts of turmoil both economically and socially.

What is the inflation forecast?
There is also much contention on how rising inflation will play out for Canada. Some forecast it as only a transitory adjustment that will subside, while others fear it’s a warning for things to come and a repeat of inflationary periods of the 1970s.

Recent inflation expectations predict that the CPI will rise above 5% by the end of the year, with multiple point increases still in the forecast in 2022. According to the Conference Board of Canada’s Index of Business Confidence, a majority of businesses polled feel inflation rates will rise 2% or more in the next six months. The central bank however hopes for average rates of 3.4 percent for 2022, up from a previous forecast of 2.4%. They aim to reach the target inflation rate of 2% by 2023.

What can the central bank of Canada do?
All eyes are now on the Bank of Canada as inflation rises. During the pandemic, the Bank of Canada cut their policy rate to record low levels in order to ensure the flow of money continued through the economy. They have committed to holding off until at least the second quarter of next year until they raise rates, and expect rising inflation to be a temporary issue.

Should they be wrong and inflation gets too out of control, they may be forced to announce an early interest rate hike, or a faster pace of increases, in order to combat inflation.

Bank ends Quantitative easing
Another means by which the bank has influenced the rate of inflation is through its quantitative easing program. Under this program, the bank bought up mass amounts of government bonds, causing their prices to surge and their yields to drop, thus lowering related rates such as fixed mortgage rates. Late last month, the bank opted to ease down this program, and many are saying this is a sign of increased interest rates to come.

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Why real estate investors shouldn’t worry about inflation

Rising inflation is a growing concern, but real estate investors can rest assured that their investments are, at least for the time being, inflation-proof.

“Real estate has been protected from inflation since the 1970s but it won’t work if there’s anything extreme, if we go back to a 15% benchmark interest rate,” said Patrice Groleau, owner of McGill Real Estate and of Engel & Völkers’ rights to the Quebec market.

However, even if rates somehow surged into the double digits, the value of real estate is mostly tied to the value of land and the cost of construction, namely materials and labour, which rise commensurately with inflation.

After the subprime mortgage fiasco that led to the Great Recession, real estate in major cities like Miami and New York quickly returned to their base values, which Groleau noted is why investors always pounce on properties in the immediate aftermath of economic downturns. Nevertheless, under normal economic conditions, inflation increases slowly and is always matched by rents, offering property investors a measure of protection.

“Rents adjust to inflation. In Quebec, every time you have a rental increase, the government looks at inflation to justify that increase, and if the price of rent goes up, the value of the building obviously goes up too,” said Groleau. “The problem with monetary policy in Canada is most decisions are all based on inflation—the biggest concern for the government is always inflation, inflation, inflation, so as soon as inflation rises, you see a direct link to real estate. It’s not perfect but if you look at all other options, there’s almost nothing better than that. Stocks don’t even match inflation the way real estate does, unless they’re blue chips.”

Groleau added that two-thirds of a downtown property’s value is tied up in the land, with the remainder determined by material costs, while it’s the opposite in suburban markets.

It is highly unlikely that interest rates reach the double digits, at least any time soon. In Japan, for example, interest rates have been near the basement since the aughties and Groleau suggests that, with Canada following suit—many advanced economies have had declining interest rates for over two decades—real estate is one of the safest investments today.

“As Andrew Carnegie said, ‘90% of all millionaires became so through owning real estate,’” said Groleau. “It has a stable core value over time because everybody needs somewhere to live, and every study and financial professional I’ve spoken to says we will follow the Japanese model. People don’t think rates can stay low forever, but in Japan they’ve been low since the early 2000s and inflation is under control.”

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