In this week’s blog post, we’re going to focus on some solid and positive news. From June 2022 to December 2022, Canada has seen inflation decline, with just one month of inflation staying flat (October). The inflation rate is now at 6.3%, down from its June 2022 peak of 8.1%. Canadian inflation is now lower than the U.S., Singapore, Australia, Germany, and the U.K. Inflation in Argentina, Turkey, and Italy is at 95%, 64%, and 11.6% respectively; a snapshot of how bad the situation is in some industrialized countries. We’ve still got a long way to go, as inflation was at 5.1% in January of last year, but the December figure was very positive news. The BOC will want to see inflation return to its 1-3% range as soon as possible. Whether or not this decline is healthy enough, long enough, and sustainable enough remains to be seen – but the BOC should see the progress that’s been made as promising. Economists called the decline an “encouraging sign.” The big anchor that pulled inflation down in December was the fall in gas prices, which declined some 13% from November’s figures. The pace of food price increases has also thankfully begun to slow, very good news.
The BOC’s decision to hike rates by a further 25 basis points should add downward momentum to inflation. Some believe that the 25 basis point increase was necessary to help consolidate the reduction in inflation that we’ve seen. Economists are pointing to huge labour shortages pushing up wages as one of many factors which continue to contribute to the slower than desired pace of inflation falling. There are a good deal of experts who see this last rate hike as the final extent to which the BOC is willing to cool the economy and raise the price of capital. How the Bank of Canada makes its next moves will be important in judging how the real estate market will fare in Q2 and beyond. The Canadian economy is in mixed shape, and the latest rate hike isn’t going to help. with economists warning that this could put hundreds of thousands of jobs at risk. The rate hike will likely lead to an increase in borrowing costs for businesses and consumers, which could slow down economic growth and lead to job losses. The rate has already been raised seven times since 2017, and each increase has made it more difficult for businesses and consumers to borrow money.
The rate hike could also lead to a decline in the housing market, as higher interest rates make mortgages more expensive. This could lead to a drop in home prices, which could hurt homeowners and the construction industry. The rate hike could also lead to a decline in the stock market, as investors are likely to pull money out of equities and move it into bonds, which are considered safer investments when interest rates are rising. The Bank of Canada’s rate hike could also have a negative impact on the Canadian dollar, as higher interest rates generally make a country’s currency more attractive to investors. This could lead to an appreciation of the Canadian dollar, which would make Canadian exports more expensive and less competitive on the global market. Overall, economists are warning that the Bank of Canada’s decision to raise interest rates could have a significant impact on the economy and job market. They are urging the bank to be cautious and consider the potential consequences before making a decision.