Stats Canada – Canada’s Inflation Rate Shrinking
StatsCanada reports that Canada’s core inflation rate shrank 0.4% to an annualized rate of 1.4% in May – a figure markedly lower than the Bank of Canada’s target rate of 2.0% per year. The Globe and Mail reports that this lower inflation rate “is about where Bank of Canada Governor Mark Carney would want it leading into his next big decision on interest rates” due the middle of next month.
The Globe cites analysts who predict that “Mr. Carney may still go ahead with his second interest rate in two months on July 20th when the Bank of Canada convenes to examine its lending rate. Mr. Carney’s decision at that time will not, however, be the result of recent inflation numbers “keeping him up at night.”
An increase in the Bank of Canada’s overnight lending rate – which is only available to a limited number of large financial institutions – sets the benchmark from which banks and other financials set the loan and mortgage rates that are offered to consumers. Currently, the central bank’s overnight rate of 0.5% is at near record low, a rate well below the latest inflation numbers. This sets up a situation which BMO Nesbitt Burns deputy chief economist, Douglas Porter, describes as “quite rare”.
Mr. Porter, according to the Globe, predicts a quarter point (0.25%) hike on July 20th, with a pause thereafter; meanwhile, TD Bank reportedly expects that the central bank’s overnight rate will rise to 1.5% by year’s end “barring any financial market flare-ups”.
This last number would, of course, be consistent with the historical trend noted by Mr. Porter – that of the Bank of Canada rate being equal to or greater than inflation. In any event, those in the market for home mortgages, or who are considering refinancing their mortgages, should pay attention to events leading up to July 20th when the Bank of Canada will make its next pronouncement on interest rates going forward.
