Last month, Canadian inflation surged to its highest level in over seven years, giving Bank of Canada considerable room to hold interest rates steady.
Fresh data from Statistics Canada showed that core inflation enjoyed a notable boost, with the average of the three key measures going up to 2.07%. Aside from exceeding the Bank of Canada’s latest quarterly forecast of 1.9%, this was the highest reading since February 2012.
These figures could indicate that a recent economic slowdown is easing, the Bank of Canada stated. This is especially plausible as all eight major components of Canadian inflation quickened in May, StatsCan added.
The consumer price index went up by 2.4% annually, outstripping April’s 2% and median economist predictions of 2.1%. The May figure was the highest year-over-year rate since October 2018, the Financial Post reported.
Along with lower borrowing costs and a stronger employment climate, these factors are working together to elevate the national housing market’s performance.
Indeed, Canadian home prices went up for the first time in nine months (with a 0.5% month-over-month increase) in May, according to Teranet data.
Stronger purchasing power is also readily apparent with the record-low 5.6% unemployment rate reached during that month. StatsCan numbers showed that the national workforce grew by 2.4% annually with 27,700 new employees, bringing the 12-month total employment gain to 453,100.
A new sector analysis by Moody’s Investors Service praised the Canadian government’s efforts to reduce outsized home price growth, without triggering a severe correction in housing markets, over the past few years.
The report noted that this is promoting greater stability in the national banking system, as “rapid consumer deleveraging” is becoming much less likely.
“Although Canadian banks’ mortgage portfolios are relatively resilient, unsecured consumer exposures would generate substantial incremental loan losses under the stress of a major housing price correction,” Moody’s explained.