A light at the end of the 'inflation' tunnel...?

A Small Dose of Good News

We all know the story and we're all maybe just a little tired of it: Inflation has been running amok. But for the first time in the last year, the runaway freight train that is inflation has begun to slow. July inflation came in at 7.6%. Down from 8.1% the month before. This marks the first bit of good news on the inflation front since the Bank of Canada (BoC) started it's rate tightening cycle in March. And I think that is an important psychological milestone for us to see the rate hikes we're enduring have some of the desired effect. And though we haven't yet derailed inflation entirely - yes I'm sticking with the train theme so get on board - it's good to see we're on the right track.

The Changing Face of Inflation

It feels like Statistics Canada has 87 different ways to measure inflation. And they do (ish). Headline Inflation is down. But Core Inflation is up to 5.3% in July from 5.2% in June. And where things like fuel and hard goods took a bit of a break from climbing as high, things like airfares, hotel costs and restaurants more than made up for it. We're starting to see that shift in spending that Ben Tal of CIBC World Markets predicted some time ago; it's going away from goods and more towards services as we all clamour for some summer vacations away after years of pent up demand. Check out your friends social media feeds and I'm sure you can see this playing out in real time. 

What Else Happened in July...?

Only the largest BoC rate hike in more than 20 years! After hiking a combined 1.25% from March through June, an additional 1% was added to the overnight rate in July! So I think it's fair to assume that we have yet to see the full effects of these rate increases and that the downward pressure on inflation will continue. But at the same time, there are still a number of inflationary factors (COVID lockdowns, War, Supply Chain bottlenecks) that will need some more time to resolve themselves. Which is to say that we're probably not fast-tracking to the BoCs 2% target rate.

Next Stop...?

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The pressure is not yet off the BoC and likely won't be for quite some time. The next rate decision on September 7th will almost certainly result in another rate increase of 0.5% or more. But as inflation concerns begin to ease and the recession fears starts to grow, might we as consumers be in for a reprieve? After all, we can't continue to raise rates ad nauseam without giving them a fair time horizon to do their thing. And given how many factors influencing inflation lie outside the BoC's jurisdiction, I for one am hoping for a pause. Like I said in my last email - the biggest battle front for the BoC lies in our collective expectations around inflation. And with seeing inflation numbers starting to ease, the BoC is hoping for expectations to go along for the ride.

And now for something completely different...after years of fighting the social media current, we have caved! Come connect with us on Instagram (@rayatnestmortgage) and even on my brand new YouTube channel (@rayatnestmortgage)! My kids are very impressed I have a YouTube channel...a little assist on my subscriber count would be appreciated!!!

And if you found this useful and know anyone that it could help, please pass it on! 

My good friend and colleague likes to end his newsletters with a Dad Joke. So in his honour and in sticking with my theme, here goes:

I tried to get a job as a railway conductor, but they didn’t think I had enough training.

Thank you. I'll be here all day.