A Surprising Surge in Canadian Inflation

Defying anticipation, the Canadian headline inflation accelerated at an annual pace of 4.4% in April, besting predictions of a 4.1% figure. As this news only came to light after the last Bank of Canada announcement (which occured on April 12, 2023), we explore their recent response on today’s June 7th press release from Ottawa, Ontario.

This marginal Canadian inflation climb is a leap from the previously registered rate of 4.3% in March. This upswing was primarily propelled by mounting shelter expenditures, encompassing rents and mortgage interest charges. A secondary influence was a hike in gasoline prices, contributing to the overall uptick.

Now, our nation’s central bank, the Bank of Canada, finds itself in a complex situation, with the labour market demonstrating tremendous strength. Over the preceding six months, a stunning 350,000 new jobs have been generated, marking a strong performance in the labour sector. The unemployment statistics remain firmly lodged near record-breaking lows. Simultaneously, wage expansion has remained vigorous, exceeding 5% – a figure the Bank of Canada concedes is incompatible with their 2% inflation objective. Collectively, these elements indicate the possibility of enduring higher rates.

This potential for persistent higher rates has not escaped the astute eyes of bond traders, who swiftly diminished the chances of a rate reduction later in the year. In response to the Consumer Price Index (CPI) release, they propelled the 5-year bond yield upwards by 15 basis points and thus has the ability to impact 5-year fixed mortgage rates.

Amidst this panorama, economic forecasters are confronted with a challenging task of distilling meaning from this mix of indicators. Despite the current conditions advocating for escalated rates, looming potential disruptions are hard to dismiss. Whether it’s the ongoing inversion in the yield curve – a traditional harbinger of recession – or key economic indicators persisting at levels last witnessed during the financial crisis and the initial phase of the COVID pandemic, there’s a storm brewing on the horizon.

The Bank of Canada today increased its target for the overnight rate to 4.75%, which will place the Prime lending rate now at 6.95%. This is the Bank’s first rate hike since January 2023. Analyzing the current data, market watchers suggested that prior to today’s announcement, that the Bank of Canada would likely hold off on making significant changes to the policy rate, and unfortunately, they were wrong. The anticipated economic deceleration, as predicted previously by leading indicators, should have facilitated a dip in inflation back in April, thereby paving the way for potential rate reductions in the early part of the next year. But this has yet to occur. The final outcome remains to be seen and calls for caution prior to making any bold predictions about lower rates or counting on this with your future mortgage planning.

Here’s an excerpt from today’s Bank of Canada announcement:

Enduring Homeowners Ponder, “Is it possible for me to withstand the current financial strain until there is a reduction in mortgage rates?” and Strategizing for the Future?

Homeowners who are grappling with financial constraints frequently pose the question, “Can I sustain my obligations long enough for mortgage rates to decrease?” and they seek guidance on the proactive measures they can take in the present. The ongoing surge in inflation coupled with soaring interest rates has rendered financial security elusive for many. The strain of high-interest liabilities only magnifies the struggle, particularly for our elderly loved ones, like our parents, aunts, and uncles, who strive to maintain a fulfilling lifestyle on a restricted income. It’s probable that you’re acquainted with someone in need of counsel on alleviating the current financial pressure.

During challenging economic times, the team here at Benchmark Mortgages understands the burden of homeownership can sometimes feel overwhelming. With fluctuating mortgage rates, many homeowners often find themselves clinging to the hope of potential rate reductions. However, the future trajectory of these rates remains uncertain due to an array of influencing factors, including inflation, economic indicators, and governmental fiscal policy.

It’s crucial for homeowners to understand that waiting for a possible decline in mortgage rates is not always the most viable or financially sound strategy. The possibility of lower mortgage rates, while appealing, must not overshadow the importance of maintaining a strong financial footing in the present. Therefore, taking action today to prepare for tomorrow’s uncertainties should be the primary focus. We bear the responsibility of being vigilant for one another, and it’s with this intention that our Benchmark Mortgages team extends our assistance. As your trusted mortgage advisors,  we are armed with strategies designed to alleviate monetary worries. This next section attempts to answer these pressing queries and provide valuable insights to help homeowners navigate their path forward.

Homeowners may want to consider alternative strategies to prepare for future uncertainties. This might include refinancing the mortgage or adding higher interest debt to their existing mortgage to lower the overall payment obligations. An option to explore if there is enough equity available in the home and if it makes sense given the homeowner’s financial situation. Similarly, homeowners might explore options for mortgage modification or even speak with their lender’s housing counselor for personalized advice.

In certain scenarios, downsizing or renting could be an effective strategy for those struggling to meet their mortgage obligations. By moving to a smaller, more affordable home, or switching from homeownership to renting, individuals may be able to reduce their monthly outgoings and accumulate savings.

• If exorbitant interest debts are depleting your cash reserves, considering a mortgage refinance could be the appropriate response. Transferring this liability to a mortgage consolidates your debts into a single, more manageable, lower payment, yielding improved cash flow, and an essential fiscal reset. Should refinancing prove unfeasible, alternative solutions are available.
• For those in your circle aged 60 or above, managing to sustain on a meager income, yet possessing robust equity in their residence, they could devise a steady monthly income, and even extract a lump sum from this equity. A reverse mortgage is a prudent strategy to settle one’s mortgage or home equity line of credit (HELOC), fund property refurbishments, medical expenses, or even assist a child or grandchild. It’s essentially a mortgage in reverse; instead of issuing payments, they receive payments.
• A simple mortgage review could suffice. Such an examination may unearth a potential avenue that could either save you money or facilitate the achievement of your financial objectives more efficiently.

Staying informed about mortgage trends and the broader economy is invaluable. Homeowners should keep abreast of changes in the housing market, interest rates, and the overall economy to make informed decisions about their property and mortgage. If you, or anyone you know, could potentially gain from examining their options for a much-needed financial renewal this summer, please don’t hesitate to reach out.

In conclusion, while the query, “Is it possible for me to withstand the current financial strain until there is a reduction in mortgage rates?” is understandable, the answer is complex and unique to each individual’s circumstances. Proactive preparation, informed decision-making, and considering alternative options will all contribute to successfully navigating this challenging financial journey.