Inflation Watch: Insights on Core Measures and the Path Ahead for Interest Rates

January 31, 2024

Key points:

  • High inflation in Canada – and worldwide – means there will be no drop to interest rates in early 2024. Rate cuts will most likely come in mid-late 2024.
  • Economic indicators show the Canadian economy is weakening as it moves toward a likely recession.

January 2024 inflation watch

Join me, Chris Molder, your Toronto Mortgage Broker, as we navigate the complex world of economics and finance in 2024. In this space, we break down the latest global inflation trends and their direct impact on Canadian mortgage rates. From analyzing bond yields to deciphering the Bank of Canada’s stance on rate cuts, we explore the intricate details that shape our financial landscape.

Don’t feel like watching? Find the full transcript below!

Chris: [00:00:00] Hello and welcome to my first inflation watch video for 2024. My name is Chris. I’ve been doing these videos for the last 12 months, taking a look at inflation and macroeconomic data to get a better understanding of when we can expect to see Canadian mortgage interest rates drop. If you’re interested in this kind of information, then I invite you to like, subscribe, share. Let’s dive right into today’s video.

Persistent inflation squashes hopes for early rate drops

Chris: [00:00:26] Reports of higher inflation has come in from around the world. It’s not just a Canadian phenomenon. We’ve seen higher inflation come in in the US, the UK, the Eurozone. And what that’s done is it’s squashed any possibility of an early drop to policy rates from central banks globally. As a result, we’ve seen markets which were really overly optimistic and very giddy with the the possibility and pricing in almost willing that rates would drop in Q1 of 2024. We’re seeing that those expectations are being repriced.

Chris: [00:01:03] As a result, we saw big bumps to bond yields mid-month. The US ten year jumped up about 20 basis points. In the UK, the ten year jumped up 25 basis points. And here in Canada our five year bond yields jumped up 30 basis points on the news. Now, the Bank of Canada had been warning markets that they were way too optimistic in their expectation that rates would drop in Q1 of 2024. And based on the most recent inflation read that we got for the month of December, it looks like the Bank of Canada was in fact right, and that realistically, we won’t start to see the need for rate cuts until mid 2024 into the latter half of 2024.

Chris: [00:01:47] Headline inflation in Canada came in as expected, at 3.4%. But the more important core measures that are relied upon by the Bank of Canada to establish their monetary policy all surprised to the upside and actually started accelerating again in the month of December, much to the dismay and disappointment of the markets. And what this shows is that while we’ve made progress against inflation in 2023, we still haven’t slayed the dragon. And it’s very much a story still in 2024.

Chris: [00:02:21] Other economic indicators are showing weakness in Canada, especially if we consider the employment numbers, which show that in the month of December, the Canadian economy created a measly 100 new net jobs for the economy. And that really disappointed and surprised many. Considering all of this latest data, it looks like we are going to have to wait until the middle part of 2024 or even into the second half of 2024, before we realistically start to see the Bank of Canada starting to cut interest rates.

Need more help or information?

Chris: [00:02:56] My name is Chris Molder. I am a Toronto mortgage broker. If you enjoyed today’s content, please give me a thumbs up. Like it. Share it. Till next time. Bye for now.

If you’d like to discuss your mortgage, you can contact me here or schedule a convenient call time directly into my calendar below.