Despite a drop in the rate of inflation in May, economists expect the Bank of Canada to raise its overnight rate by .25% on July 12, taking it to 5%, the highest since 2001..May’s Consumer Price Index (CPI) rose by 3.4%, year-over-year (y/y), down from April’s rate of 4.4% (y/y), due to a .8% decline in gasoline prices, month-over-month and a drop of 18.3% y/y. .Higher prices in several shelter and food subcategories were key to overall CPI growth, according to Statistics Canada, which says y/y, food prices increased 9% in stores and 6.8% in restaurants..“Mortgage interest costs continued to surge and accounted for a large portion of the overall yearly CPI increase, spiking by nearly 30% compared with May 2022,” says StatCan..Canadian Mortgage Trends reports observers say while the latest inflation data suggests there's been a notable slowdown in price growth, inflationary pressures persist in certain sectors of the economy and therefore leave the doors open to yet another Bank of Canada rate hike next month..“Bank of Canada policymakers won’t breathe a huge sigh of relief after this report as core inflation remains sticky and has yet to show signs of a durable slowdown,” wrote BMO’s Benjamin Reitzes..“The odds of a July rate hike might be slightly lower now, but if the rest of the data hold up over the next two weeks, a hike still looks likely.”.Ironically, Canadian Mortgage Trends points out the data shows “the Bank of Canada’s rapid pace of rate hikes over the past year have become the biggest contributor to overall inflation. Excluding higher mortgage costs, inflation would have been 2.5% in May, Statistics Canada said.”.“Mortgage interest costs, a sub-component of the overall inflation measurements, rose at an annual pace of 29.9% in May, the highest on record and up from 28.5% in April.”.In a note, RBC economists wrote, “Those costs will continue to rise as higher interest rates flow gradually through to household mortgage payments with a lag, as contracts are renewed. And home-buying related expenses ticked higher in May, with higher home resale prices increasing realtor and broker commissions.”.RBC adds “GDP data and the bank’s own Q2 Business Outlook Survey later this week will be watched closely for signs that the economy is losing momentum.” .“But absent a large downside surprise from those data releases, we continue to expect the bank to hike the overnight rate by another 25 basis points in July, before stepping back the sideline for the rest of this year.”.Derek Burleton, deputy chief economist at TD Bank says every indicator signals the Bank of Canada will almost certainly raise its policy rate again on July 12..Burleton told BNN Bloomberg TD is anticipating the central bank to hike its benchmark rate to 5%..“We see signs pointing toward a rate hike, and the markets are already ready for it,” Burleton said. “It’s a close call on whether the Bank of Canada will hike after that, and we’ve decided for now not to build in a follow up rate hike in September.”.Conference Board of Canada agrees, saying in a note, “With stubbornly elevated core inflation and persistent excess demand, the Bank of Canada will likely raise interest rates again in July.”.The conference board noted housing markets are showing signs of turning upward despite tighter monetary policy. .“If interest rates do not have their intended effect, namely, excess demand does not fall, there are grounds for raising them higher.”.The conference board says higher rates will become the norm..“Structural changes may keep interest rates above their pre-pandemic range even after the current bout of inflation is reined in,” it says. “The Bank of Canada sees interest rates as likely higher in the long-term relative to the years preceding the pandemic.” .“As demographic changes and other structural forces in the economy shift, the bank’s Deputy Governor Beaudry recently encouraged Canadians to be prepared for higher interest rates in the future. If rates are higher for longer, consumer borrowing, saving, and investment decision-making could change significantly throughout the medium run.”
Despite a drop in the rate of inflation in May, economists expect the Bank of Canada to raise its overnight rate by .25% on July 12, taking it to 5%, the highest since 2001..May’s Consumer Price Index (CPI) rose by 3.4%, year-over-year (y/y), down from April’s rate of 4.4% (y/y), due to a .8% decline in gasoline prices, month-over-month and a drop of 18.3% y/y. .Higher prices in several shelter and food subcategories were key to overall CPI growth, according to Statistics Canada, which says y/y, food prices increased 9% in stores and 6.8% in restaurants..“Mortgage interest costs continued to surge and accounted for a large portion of the overall yearly CPI increase, spiking by nearly 30% compared with May 2022,” says StatCan..Canadian Mortgage Trends reports observers say while the latest inflation data suggests there's been a notable slowdown in price growth, inflationary pressures persist in certain sectors of the economy and therefore leave the doors open to yet another Bank of Canada rate hike next month..“Bank of Canada policymakers won’t breathe a huge sigh of relief after this report as core inflation remains sticky and has yet to show signs of a durable slowdown,” wrote BMO’s Benjamin Reitzes..“The odds of a July rate hike might be slightly lower now, but if the rest of the data hold up over the next two weeks, a hike still looks likely.”.Ironically, Canadian Mortgage Trends points out the data shows “the Bank of Canada’s rapid pace of rate hikes over the past year have become the biggest contributor to overall inflation. Excluding higher mortgage costs, inflation would have been 2.5% in May, Statistics Canada said.”.“Mortgage interest costs, a sub-component of the overall inflation measurements, rose at an annual pace of 29.9% in May, the highest on record and up from 28.5% in April.”.In a note, RBC economists wrote, “Those costs will continue to rise as higher interest rates flow gradually through to household mortgage payments with a lag, as contracts are renewed. And home-buying related expenses ticked higher in May, with higher home resale prices increasing realtor and broker commissions.”.RBC adds “GDP data and the bank’s own Q2 Business Outlook Survey later this week will be watched closely for signs that the economy is losing momentum.” .“But absent a large downside surprise from those data releases, we continue to expect the bank to hike the overnight rate by another 25 basis points in July, before stepping back the sideline for the rest of this year.”.Derek Burleton, deputy chief economist at TD Bank says every indicator signals the Bank of Canada will almost certainly raise its policy rate again on July 12..Burleton told BNN Bloomberg TD is anticipating the central bank to hike its benchmark rate to 5%..“We see signs pointing toward a rate hike, and the markets are already ready for it,” Burleton said. “It’s a close call on whether the Bank of Canada will hike after that, and we’ve decided for now not to build in a follow up rate hike in September.”.Conference Board of Canada agrees, saying in a note, “With stubbornly elevated core inflation and persistent excess demand, the Bank of Canada will likely raise interest rates again in July.”.The conference board noted housing markets are showing signs of turning upward despite tighter monetary policy. .“If interest rates do not have their intended effect, namely, excess demand does not fall, there are grounds for raising them higher.”.The conference board says higher rates will become the norm..“Structural changes may keep interest rates above their pre-pandemic range even after the current bout of inflation is reined in,” it says. “The Bank of Canada sees interest rates as likely higher in the long-term relative to the years preceding the pandemic.” .“As demographic changes and other structural forces in the economy shift, the bank’s Deputy Governor Beaudry recently encouraged Canadians to be prepared for higher interest rates in the future. If rates are higher for longer, consumer borrowing, saving, and investment decision-making could change significantly throughout the medium run.”
