Canada's annual inflation rate rose 0.6% in July (from June), kicking up the July inflation rate to 3.3% (from 2.8% in June) - more importantly, our inflation rate is now higher than the U.S. for the first time since the pre-pandemic days. Keep in mind, the Bank of Canada's inflation target is 1–3%.
Contributors to this increase were due to shelter (+0.7% Y/Y) fueled by a +2% surge in mortgage interest costs (now +30.6% Y/Y) and utilities (+2.3% Y/Y). Airfare and travel services were also strong due to the summer travel season. Gasoline prices are on track to rise over 5% in August.
Impact: This is not a good report for the Bank of Canada, while they did expect a 'back-up' in headline inflation (i.e., sticky down trend), July's result is already at the Q3 expectation, with August's readings to date expected to be even higher. The silver lining here is that CORE inflation is slowing. With the increase in unemployment and clear signs of cooler spending, some economists expect the BoC to PAUSE in September to give prior rate hikes some time to settle in - however, this month's reporting makes it a tough call.
Canadian existing home sales were also reported to be balanced across Canada - except for the Calgary market. Sales-to-new listings ratio is running hot at 82%, and prices are now 5% higher than the early-2022 high! On the flip side, Toronto's sales-to-new listings ratio is at the lowest in all markets at 44%. Relative pricing across the country continues to point to the Calgary market as the most affordable market heading into the pandemic boom and remains cheap coming out of it.
Impact: At a feeral level, the housing market is balanced, except for our outlying market here in Calgary. The inflation backdrop continues to argue for higher rates to remain well into next year - meaningful near-term mortgage rate relief looks unlikely. The challenge of higher mortgage rates and possible increase unemployment rate will be battling against strong demographic demand for housing. However, buyers seem to be adjusting to higher rates.
Source: Bank of Canada, Statistics Canada