Where we are, Where we are Going
There is good news on the economic front which should give consumers and businesses some solace. Statistics Canada and the Bank of Canada (the “Bank”) recently released reports that you can leverage in your communications with clients.
I find the following takeaways interesting:
Inflation
The Consumer Price Index (CPI) is tracking close to the Bank’s target of 2%. As a result, the Bank lowered its overnight lending rate by 0.50% (aka 50 basis points). The lowering of the Bank’s overnight rate will positively impact variable rate mortgages, with those rates dropping in the next month.
This is largely supported by decreases in the Producer Price Index, which dropped in August and September.
There are still individual items within the CPI with prices that rose well above their 10-year averages. Things like dining at restaurants, rent and mortgage interest costs are still “high” compared to two years ago.
Inflation is expected to remain close to 2% well into 2026, with a small increase expected in 2025. It is typical for the Bank to overshoot in one direction or another, as the full effect of its policy and rate changes aren’t realized for about six months. We’ll probably see them take a pause on future rate changes to see what the 50 basis point reduction does.
Employment
Some of what is driving the lower inflation can be attributed to the large drop in mortgage rates. There has also been a softening in the labour market, with many businesses putting hiring on hold. New Canadians and Canadians under 24 years are feeling the brunt of the pressure. Unemployment for these groups is hovering close to 15% compared to the national average.
GDP Growth
GDP per capita shrunk in 2023 and the first half of 2024. It is expected to start growing at a rate of 2% starting in 2025, which broadly speaking seems to also be a reasonable growth rate that will result in a CPI that falls within the Bank’s target range. Excess supply is being picked up through Exports, which are being supported by current exchange rates.
These are all rather positive things that support the real estate and mortgage industries. Please see the Bank of Canada’s full outlook online for additional information.