The Canadian population is surging but concerns of excess supply are still mounting. As widely anticipated, the Bank of Canada (BoC) announced a rate cut this morning at its September meeting. The central bank is seeing progress on inflation but it may be too much—they’re now worried about deflation. At least one of Canada’s largest banks told investors they expect easing to continue and even accelerate if the labor market continues to erode at the current pace.
Bank of Canada Rate Cuts Amongst The Fastest In The G10
The BoC slashed rates this morning, as widely expected. The overnight rate was cut by 0.25 points to 4.25%, pushing it to the lowest level since the start of 2023. Monetary policy seems to be moving unusually fast and panicked under this leadership—first with tightening and now with easing.
“This marks the third cut in three consecutive meetings, and leaves the BoC as the top cutter among G10 central banks so far this cycle,” explained Douglas Porter, chief economist at BMO.
Elected officials have been framing the fact Canada is ahead of other G7s as a good thing. Unfortunately, the reality is that rapidly slowing inflation means the economy is underperforming the global economy. The BoC Governor glossed over the issue, but did make a point to mention it.
Bank of Canada Now Worried Inflation May Be Cooling Too Fast
The primary objective at the BoC is to control inflation, and they’re finally doing it. Annual growth of the consumer price index (CPI) came in at 2.5% for July, shedding 0.1 points from the previous month. Not quite down to the target rate of 2% but progress is being made fast. Perhaps a little too fast.
“Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up,” said BoC Governor Tiff Macklem.
Adding, “The Governing Council is carefully assessing these opposing forces on inflation.”
Governor Macklem further reiterated the BoC Governing Council will be making data-dependent decisions. They attribute the current inflation slowing in part to a base effect, and see inflation potentially rising later in the year. It’s worth recalling the BoC previously failed to raise rates due to the belief that elevated inflation was due to a base effect. The fear of high inflation is less worrying than the fear of too little inflation, apparently.
The central bank generally expects inflation to fall, but upside concerns remain. “… with inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much,” said Macklem.
BMO Sees Sharp Cuts To Interest Rates—Which Can Get Sharper
Market experts don’t share the BoC concerns of inflation accelerating anytime soon. BMO anticipates a series of 0.25 point cuts over the next few months. They see the risk of easing even faster with the weak labor market, even citing the potential for a 0.5 point cut if the erosion happens fast enough.
“For now, we look for the Bank to cut rates to 3.5% by January, and then to 3.0% by next June, but the risks tilt to the Bank going faster than that, and potentially further,” said Porter.
Should be Zero Percent, For Ten Years, After this Crooked Absolutely Disgusting, Broad Definition of Crisis Pathetic Excuse of an Accident Murderering, Criminal, Cult of Speed Demon, Q Government of Grown Adults
I wouldn’t mind another 30% deflation in the RE market. Let the gamblers take their losses to productive investments can be made. I.E. actual shelter for those in need.
Over levered investors who purchased multiple properties through numbered companies to flip or rent out, should be the ones to suffer. They contributed to the artificial supply shortage via greed. Homes are for living, the stock market is for gambling.
There will be no mercy.
With you on that
All roads lead to real estate stimulus.
What I’m finding wild is how fast rental vacancies suddenly popped up. None of the immigration policies have gone into effect, but there’s no one inquiring about rentals now? Something smells fishy.
All the rich immigrants were replaced with human trafficked poor ones on temporary foreign worker visas or here as refugee claimants. They just can’t bid up rental prices whilst simultaneously putting up 12 months rent in advance.
I have a friend who immigrated easily under the points system early in the Harper years. By the end of Harper’s term he was borderline. Today under Trudeau, if he had a PhD and 2 years of Canadian work experience he still wouldn’t get enough points to immigrate legally.
Chinese social media is very happy to attribute Torontos rental woes to a collapse of rich Chinese seeking student visas, and it’s hard to see how they’re wrong about that.
Had a real bubble moment at work today when people literally cheered when the announcement was made. Never has a poor economy made so many people happy.
Rates are not being cut because of a weakening economy. Rates are being cut to provide relief (aka “stimulus”) to all those over levered bag holders whose mortgages will be reset higher between now and 2025. A side effect will be that a lot of unscrupulous brokers will entice naïve buyers on the sidelines to enter the market due to the lowered rates.
As inflation resumes its rise next year (clearly noted by BAC in the article), the rug will be pulled and rates will resume upward trajectory, trapping additional bag holders on the way to perpetual debt slavery.
Smart homebuyers beware! Brokers are not your friends. Do not buy until there is blood on the streets.
I’d think exactly like you if it weren’t for the fact that inflation might only resume in financial assets (real estate being one, unfortunately), which are barely tracked, if at all, by Stats Can in its assessment of inflation. Exactly like it used to until the pandemic. The TSX, the Canadian bond market, real estate… who cares if they go out of control if grocery just goes up 2% per year?
Inequalities are just going to deepen that way without anybody batting an eye, I’m afraid. At least, until something finally breaks, because I doubt we’re led by people smart enough to have full control over the situation forever.
Rents are tracked in the CPI. Youth are the ones most impacted by rental inflation and this is the segment policy makers will be most interested in pacifying going forward. Policies that force generational wealth transfer will be favored over an unproductive and parasitical speculators.
Canada does not have a productivity crisis as much as it has a demoralization and confidence crisis. Restore confidence amongst the young and most productive members of society and watch productivity go up. For that, unfortunately, boomers and greedy speculators will have to suffer.
In his opening statement, Macklem said: “The unemployment rate has risen over the last year to 6.4% in June and July. The rise is concentrated in youth and newcomers to Canada, who are finding it more difficult to get a job.” He is basing his statement on the StatCan release identifying higher unemployment for immigrants “who had landed in Canada within the previous five years”. Why does he want to redefine these people as “newcomers”, instead of just using the StatCan definition. Some people may take it to suggest immigrants who have been here a year or less, which is not the case.
Later in his opening statement, Macklem said: “As outlined in our July forecast, inflation is expected to ease further in the months ahead. It may bump up later in the year as base-year effects unwind. . .” In the second statement he seems to have had in mind especially the monthly inflation rate changes for September 2023 (-1.5%), December 2023 (-3.7%), and January 2024 (0.0%), with all monthly rates annualized. Only the September 2023 monthly rate would actually be relevant for upcoming CPI releases in calendar year 2024, but perhaps Macklem was thinking of the fiscal year ending in March 2025, so that September 2024, December 2024 and January 2025 could all potentially see increases in the annual inflation rate. Macklem should really rid itself of StatCan’s trashy terminology, and speak about exit effects, not base effects and certainly not base year effects. When you are talking about why the 12-month inflation rate might rise even if there were no rise in the monthly inflation rate for the most recent month, you are, if you take the base effect terminology seriously, talking about a base month effect, not a base year effect. Why would such an intelligent man make such a silly mistake?
“Excessive Supply”
Excessive Taxes personally, provincial and federal are too high. Property taxes, Carbon tax and high interest rates has all Canadians struggling.
I have said RATE HIKES WILL CRUSH HOARDERS all along because I know how the Federal, Provincial and Local Governments work in Canada. Cuts help those hanging by a thread. Hikes crush hoarders and force units and homes to be listed and sold asap.
Banks, real estate boards, brokerages, realtors are the biggest stakeholders in the housing and will keep sowing fears in potential home buyers. Every news of slowing home sales and soaring inventories will accompany with “but it is going to change…” FOMO statements enticing home buyers to jump now otherwise they will miss the boat. Of course it is in their best interest to keep house prices inflated forever. Walk into any bank and they will tell you that the cost of mortgage should be around 30-40% of your earnings. With an average Ontario family pre-tax income of $100k, the qualifying home price should be around 400k. So what drove the home prices beyond peoples means? Bankers, real estate boards, realtors, brokerages and gamblers (so called investors). The mafia wants people to sign lifetime slavery agreements called mortgages.