May Inflation: A More-Than-Welcome (And Significant) Dip

Back To Inflation Talk...

Like the Bank of Canada (BoC), my pause on inflation analysis was short-lived. But at least I bring to you some welcome news: Statistics Canada released the May inflation data and it finally starts with a "3". The headline number for CPI officially comes in at 3.4%. Which is down significantly from April's 4.4%. And though a big portion of the fall-off comes from lower energy prices than one year ago, there is good news across a wide range of the components and measures of inflation.

​

The step down below 4% should do wonders for consumer expectations. On average, 'we' have been quite pessimistic about the path inflation. Faith that the BoC could succeed in their mission to bring inflation back to 2% has been hard to come by. Credibility is hard-earned and easily lost. And we're still not over the trust-issues created by being told rates would be low for a long time only to see the most significant rate increases in over 30 years.

​

The BoC can ill-afford any more missteps on their journey to tame inflation. We are all anxiously awaiting a drop in interest rates to ease some of the financial burden. But if they come down too soon, the BoC risks a rebound in inflation. If that were to happen, all faith in their ability to control inflation would be lost. And that's the last place Governor Macklem and his staff want to be.

​

What are interest rates doing?

​

Fixed interest rates of all lengths have increased rather dramatically over the last month. April's inflation data combined with the first quarter GDP numbers significantly changed the outlook for the BoC's policy rate. The conditional pause proved to be a false summit and markets moved to expect two more rate increases in 2023 (we saw one of those this month). Experts are currently split on whether we see the second increase at the July 12th BoC announcement. Barring significant job losses being reported on July 7th, or underwhelming GDP numbers, it's likely a safe bet we see that second hike next month.

​

That likely raises the blood pressure and stress levels of variable rate mortgage holders. It's been a rough stretch here for us and we're looking for some reprieve. The challenging part here is that if you want to convert to a fixed rate, it's likely a lateral move. And for some, it will come with a necessary increase in payment (those on fixed-payment variables). Making the move out of a variable rate will be dependent where you believe things are going. And that's something we're happy to discuss with you.

Where we go from here...

What we're all looking for is some stability and consistency. And though we're not quite there yet, all we can really do is manage what we have in front of us. For those who have mortgage renewals coming up, guidance and solutions will be increasingly important. Banks are tightening lending standards and raising rates. They also know it's harder to get qualified and aren't exactly giving up their best options easily. If you or anyone you know has a renewal upcoming, please reach out. There are very likely better options that will help take some of the bite out of these higher rates.

​

As always, we're here for any questions you have. Don't hesitate to reach out!

​