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Last week the Bank of Canada (BoC) announced that it would leave its overnight rate unchanged, as was almost universally expected. This matters to anyone in the market for a mortgage because all of our variable and fixed mortgage rates are priced either directly or indirectly on the overnight rate.
The BoC also offered its latest insights into how both the Canadian and U.S. economies are progressing. Here are my five key highlights from that statement:
- Inflation is running “near the bottom” of the BoC’s target range of 1% to 3%, largely as a result of “the transitory effects of sharply lower energy prices”. Meanwhile, core inflation, which strips out volatile consumer price index (CPI) inputs like food and energy, “remains above 2%” and is being “boosted by the pass-through effects of past depreciation of the Canadian dollar … as well as sector specific factors”. So we’ve got “transitory effects” of cheaper oil pushing overall inflation down, and “pass-through effects” of the rising Loonie pushing core inflation up. These forces have been roughly offsetting, and that has created a tenuous balance for our inflation momentum, but the Canadian dollar has rallied of late and if that trend continues we should expect to see some upward pressure on inflation in the near future.