Dave Larock in Interest Rate Update, Mortgages and Finances
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Statistics Canada released its latest inflation data last Friday and it showed our Consumer Price Index (CPI) growth slowing to 0.80% in April (as compared to 1.2% in March). Not surprisingly, this slowdown in year-over-year inflation was led by another 13.5% drop in energy prices, which followed a 10.4% decline for that category in March.
Stats Can also provides us with a more refined measure of inflation, which strips out volatile CPI inputs like food and energy, called core inflation, and momentum in this category also slowed to 2.3% in April (as compared to 2.4% in March).
The CPI data act as important gauges for anyone keeping an eye on Canadian mortgage rates because the Bank of Canada (BoC) will adjust its overnight rate, on which both of our variable and fixed mortgage rates are either directly or indirectly priced, to ensure that our economy maintains overall price stability.
With that in mind, here are my key takeaways from the latest CPI data, along with some other related thoughts as we look toward the BoC’s next policy-rate announcement this Wednesday:
The BoC is not expected to change its policy rate at its meeting this Wednesday, but its accompanying commentary will offer us valuable insight into how it sees our economy progressing as compared to its forecast. Keep in mind that the Bank’s crystal ball has had quite a rose-coloured tinge over the last several years, and as such, I expect that the Bank will emphasize “uncertainty” instead of “weakness”, as a way to soften its assessment of our current economic trajectory.
Five-year Government of Canada (GoC) bond yields rose by five basis points last week, closing at 1.05% on Friday. Five-year fixed-rate mortgages are offered in the 2.49% to 2.59% range, and five-year fixed-rate pre-approvals are available at rates as low as 2.69%.
Five-year variable-rate mortgages are available in the prime minus 0.65% to prime minus 0.80% range, depending on the terms and conditions that are important to you.
The Bottom Line: The latest CPI inflation data lent support to the BoC’s view that last month’s spike in our core-inflation growth rate was caused by pass-through factors that would prove temporary. A more benign inflation rate allows the BoC to remain cautious on the timing of its next monetary policy move, and gives the Bank time to let the various impacts of the oil-price shock play out more fully. That approach implies that both our fixed and variable mortgage rates should remain at or near their current levels for some time to come.
David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog, Move Smartly, and on his own blog: integratedmortgageplanners.com/blog Email Dave