1. Canada's inflation rate dropped to 2.8% in June, entering the Bank of Canada's target range for the first time in over two years. Lower gasoline prices contributed to the decline.

2. Grocery prices in Canada increased by 9.1% year-over-year in June, slightly faster than in May.

3. Core measures of inflation, which exclude volatile components, have not decreased as much as the overall rate. These measures are currently between 3.5% and 4.0%.

4. The Bank of Canada raised interest rates recently, expecting inflation to remain high for an extended period. It anticipates inflation to hover around 3% over the next year and gradually decline to 2% by mid-2025.

5. While overall inflation fell within the Bank of Canada's target range, the central bank aims to achieve a 2% rate. The rate hikes are intended to reduce demand in the economy by making borrowing more expensive. However, this has led to higher mortgage interest costs for Canadians.

In summary, Canada's inflation rate reached the Bank of Canada's target range, primarily due to lower gasoline prices. Grocery prices continued to rise, and core measures of inflation remained elevated. The Bank of Canada expects inflation to stay high and aims for a 2% rate. While the rate hikes aim to reduce inflation, they have led to increased mortgage interest costs for Canadians.

The Bank of Canada surprised economists by raising its benchmark interest rate in response to concerns about a heated economy that could result in inflation significantly exceeding its two percent target. This unexpected decision has sparked speculation about the possibility of further rate hikes later this summer. In its first increase since January, the central bank raised the benchmark interest rate to 4.75 percent, the highest level since May 2001. Let's explore the implications of this move through the following key points:

1. The rate hike:
- The Bank of Canada increased its benchmark interest rate by a quarter-percentage point, reaching 4.75 percent.
- This decision was made to address the concern that the previous rate of 4.5 percent was not sufficiently restrictive to bring inflation back down to the desired two percent target.
- The central bank's action reflects a change in its previous approach of maintaining the key rate unchanged in March and April.

2. Potential for additional rate hikes:
- While economists were not expecting a rate hike, some now believe that a single increase may not be enough.
- There is growing speculation that the Bank of Canada might implement further rate hikes later in the summer.
- The decision to raise interest rates underscores the central bank's focus on containing inflationary pressures in the economy.

3. Economic indicators and inflation:
- The Bank of Canada's decision follows strong economic indicators, including better-than-expected economic output in the first quarter of the year and a robust labor market.
- Despite monthly declines, the annual inflation rate rose to 4.4 percent in April, up from 4.3 percent in March.
- The central bank's statement emphasized that demand in the economy appears to be more persistent than initially anticipated, reinforcing the need for a higher interest rate.

4. Implications for borrowers:
- The increase in the benchmark interest rate will impact the cost of borrowing in Canada.
- Borrowers, including those seeking mortgages or other loans, may experience higher interest rates, potentially affecting affordability and borrowing capacity.
- Individuals considering entering the real estate market or refinancing their existing mortgages should evaluate the potential impact of higher interest rates on their financial plans.

The Bank of Canada's decision to raise its benchmark interest rate demonstrates its commitment to addressing inflationary concerns in the face of a hot economy. While unexpected, this move could signify a shift toward a series of rate hikes in the coming months. As prospective homebuyers or current homeowners, it is crucial to stay informed about these developments and understand how they might impact the real estate market and personal financial decisions.

More here: https://globalnews.ca/news/9751501/bank-of-canada-interest-rate-june-2023/

Introduction:
What is the likelihood of the Bank of Canada (BoC) hiking its policy rate in the upcoming meeting? Recent economic data, including higher inflation and stronger-than-expected GDP growth, has led to a shift in market expectations from rate cuts to a potential rate hike. The post explores the factors influencing the BoC's decision and provides a prediction on whether there will be a rate hike this week.

Key points:

1. The Consumer Price Index (CPI) in April was 4.4%, showing a slight increase from the previous month and the first monthly uptick since June 2022.
2. The bond market responded to the inflation surprise by reducing bets on future BoC rate cuts.
3. Q1 GDP grew by 3.1% on a quarter-over-quarter annualized basis, surpassing forecasts and indicating a robust economy.
4. The bond market priced in a potential BoC rate hike by July due to the positive GDP growth.
5. Market psychology has shifted from expecting rate cuts to anticipating a rate hike, leading to an increase in Government of Canada (GoC) bond yields and fixed mortgage rates.
6. The BoC needs to consider how the strong economic data affects consumer and business expectations regarding future inflation, as these expectations can become self-fulfilling.
7. While the economy has been running hotter than expected, there are signs of cooling, such as the increasing supply of labor outpacing demand and a potential slowdown in consumer spending as pandemic-related savings diminish.
8. The full economic impact of higher mortgage rates on real estate markets will be realized when existing borrowers renew their mortgages, potentially leading to disinflationary effects.
9. The BoC is likely to maintain a hawkish bias to curb inflation expectations, but it may prefer to delay another rate hike to assess the impact of previous increases.
10. The BoC recognizes that the rapid series of rate hikes it has already implemented will continue to intensify.
11. One-third of the recent price rise was attributed to higher borrowing costs, which the BoC itself contributed to.
12. The author predicts no rate hike in the upcoming BoC meeting.

Please note that the views expressed in this blog post are the author's own and do not reflect definitive outcomes or statements from the Bank of Canada.

Check out David's excellent Monday morning blogs on this topic: https://www.integratedmortgageplanners.com/blog/monday-morning-rate-update/will-the-bank-of-canada-hike-this-week/

Intro: The Canadian economy experienced surprising growth in the first quarter, but this may not be a cause for celebration. With inflationary pressures and concerns about a cooling economy, the Bank of Canada faces a challenging situation. The latest GDP report highlights the resilience of the Canadian consumer, but there are indications that a slowdown may be on the horizon. Let's delve into the details of the report and what it means for the real estate market.

Key Points:

1. First-quarter GDP growth of 3.1% suggests more inflationary pressure, signaling that the battle against inflation is not over.
2. The strong rebound in household consumption, up nearly 6% annualized, raises concerns about the need for further interest rate hikes.
3. However, the GDP report reflects the past, and more recent indicators show a waning of consumer demand.
4. Statscan's figures for March indicate a decline in retail, restaurant, and bar activity, while the preliminary estimate for April points to further slowing in the retail sector.
5. The Canadian Chamber of Commerce's Local Spending Tracker reveals a decline in real spending per capita in March and April, especially in urban centers.
6. Business investment has been declining for three consecutive quarters, leading to a negative business sentiment and lower inflation expectations.
7. High household debt, rising interest rates, and declining home values are expected to impact consumer energy as more mortgages come due for renewal at higher rates.
8. The recent retail and spending numbers serve as evidence of cracks emerging in consumer confidence and spending.

Summary:

Despite the robust growth in the Canadian economy during the first quarter, there are concerns about its sustainability. The strong rebound in household consumption and inflationary pressures indicate the need for further action by the Bank of Canada. However, recent data suggests a slowdown in consumer demand, with declining activity in retail and a decrease in real spending per capita. Business investment has also been in decline, contributing to negative sentiment and lower inflation expectations. Experts predict that high household debt, rising interest rates, and declining home values will impact consumer energy, potentially leading to a cooling of the economy. These emerging cracks in consumer confidence and spending may have implications for the real estate market, as the overall economic outlook becomes more uncertain.

Summary: The province of British Columbia is taking action to address the housing crisis by setting construction targets for 10 municipalities, including Vancouver and Victoria. The targets will encourage municipalities to streamline development approval processes and update zoning laws to expedite housing projects. The targets, developed with the help of experts, will go beyond mere unit numbers and consider the need for various types of housing, including affordable and family-friendly units. The province may appoint an independent adviser or intervene if communities face challenges in meeting the targets. The initiative aims to improve affordability and create the right conditions for non-profit and co-op housing.

Key Bullet Points:

1. British Columbia is setting housing targets for 10 municipalities to tackle the provincial housing crisis.
2. The targets will encourage municipalities to address local barriers to construction and streamline development approval processes.
3. The first 10 communities were selected based on various metrics, including projected growth, affordability, and land availability.
4. The targets will be shared with the chosen cities to allow assessment and potential policy shifts.
5. Economists and experts have been engaged to develop the targets, which will consider the need for different types of housing.
6. The province may appoint an independent adviser or intervene if communities face challenges in meeting the targets.
7. Some communities in British Columbia have been resistant to growth, which is not acceptable during a housing crisis.
8. Vancouver Mayor Ken Sim emphasized the need for all types of housing, from supportive units to affordable rentals and home ownership.
9. The targets are expected to start the process of improving affordability, although cheap housing may not be achieved immediately.
10. The provincial targets will also consider the supply of affordable housing and signal readiness for investment from provincial and federal governments.

In an effort to tackle the housing crisis in British Columbia, the province is taking proactive steps by setting construction targets for 10 municipalities. By encouraging local governments to address barriers to construction and streamline development approval processes, the aim is to expedite housing projects and increase supply. These targets, developed with the help of experts, go beyond mere unit numbers and consider the need for various types of housing, including affordable options and family-friendly units. The province is prepared to provide support and intervene if communities face challenges in meeting the targets. The initiative seeks to improve affordability and create favorable conditions for non-profit and co-op housing.