Key points:
- Inflation has dropped once again after a sudden increase back in April, coming in at 3.4%.
- Expectations of a July interest rate hike, which were high, are now much lower.
- Interest rates on three year fixed products are climbing after a surge in popularity.
June 2023 inflation watch
In this video, I discuss the recent inflation watch numbers here in Canada. Inflation has dropped back down after a sudden surge in April, which has reduced the confidence that a rate hike is coming on July 12th. Here’s what you need to know.
Don’t feel like watching? Find the full transcript below!
Chris: [00:00:00] Welcome to your June 2023 Inflation Watch video where we do a deep dive analysis of the hottest macroeconomic charts that impact Canadian mortgage interest rates. If this is your first time here, welcome. Please consider liking and subscribing so you don’t miss future content. Let’s dive right in.
Inflation has dropped once again
Chris: [00:00:18] First off is probably the most important piece of data that we’ve received over the last month. That was the Canadian CPI numbers, which after an increase in the month of April, that freaked everyone out, we are back to your regularly scheduled programming. The inflation rate dropped to 3.4%, which slightly beat expectations. The consensus was 3.6, came in at 3.4. But it wasn’t just the headline inflation that dropped. The more important measures, which are the core measures of CPI trim, CPI median, and CPI common, represented by the yellow green and red lines on this graph, also dropped more than expected, which will be a relief for the Bank of Canada. We also got some good bad news. We live in a weird world where bad news can be good. Earlier this month, with the number of Canadian jobs gained or lost, so in the month of May, the Canadian economy actually shed 17,000 jobs, which again, not positive for those people that lost their jobs. But it is deflationary and a sign of weakness in the economy, which we are craving to kind of turn the corner on this story on inflation and for interest rates. So we lost 17,000 jobs. And that means that the unemployment rate increased for the first time in the past seven months to 5.2%.
There is less confidence that a July rate hike is approaching
Chris: [00:01:54] So how does all of this translate into Canadian mortgage interest rate forecasts? Well, prior to the CPI release that happened just this week, there was an overwhelming expectation that the Bank of Canada was going to increase the prime rate by one quarter of a percent in the July meeting, which is on July 12th. Tiff, the governor of the Bank of Canada was quoted last week in a meeting suggesting that that was what he expected and that would be the terminal rate. However, those expectations are starting to change, as you can see in this chart from June 21st. So this is just one week ago, there was a 98% chance that the Bank of Canada was going to increase the prime rate by a quarter percent in Q3 of 2023. And then it goes on with expectations to show that they were expecting a half a percent increase by the end of this year. Fast forward to today and expectations have completely changed. Right now, the market is not even 50% sure that the Bank of Canada will increase the prime rate in Q3 of this year, and those expectations will change each time there’s a new piece of economic data that comes out.
Chris: [00:03:16] So where are the most popular fixed rate mortgages in Canada priced right now? Well, as a result of the very strong CPI numbers for the month of April and Q1’s GDP growth, which actually blew expectations out of the water, the Canadian economy was shown to be growing at a very fast pace of 3.1%. That caused bond yields and fixed rate pricing to increase by 0.75% from the lows that we saw earlier this spring. So we’re looking at interest rates for five year fixed between 5.09 and 5.89%, depending on whether it’s insured or uninsurable. And the all popular three year fixed may have had its day because pricing on fixed rate three year is up substantially into the high fives and exceeding 6% for uninsured mortgages.
Chris: [00:04:09] In summary, where does that leave us with the rate forecast? Well, something that seemed like a sure thing about a week ago, which was that the Bank of Canada would definitely increase the prime rate by a quarter of a percent, now seems a little bit uncertain. And I think that the latest CPI numbers will give at least an argument for the Bank of Canada to hold the prime rate unchanged in the July meeting and wait for more data before they do further increases or hold further.
Need more help or information?
Chris: [00:04:39] My name is Chris Molder. I am a Toronto mortgage broker. If you found any value in today’s content, please drop me a line. Consider liking and subscribing. Until next month. 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.
