In February, the Consumer Price Index (CPI) climbed 2.8%, compared to the year before. This was a slight drop from the 2.9% rise in January and notably lower than the anticipated 3.1%. Canada observed an acceleration in gasoline prices for the first time in five months, prompting analysts to predict a surge in February inflation, mirroring trends in the U.S. However, this uptick in gasoline prices was balanced by slower growth in cellular services, groceries, and internet access costs. Excluding gasoline, the headline CPI was moderated to a 2.9% year-over-year increase in February, down from 3.2% in January. Rent prices and mortgage interest continued to exert upward pressure on the headline CPI.
The Canadian Real Estate Association reported a 3.1% month-over-month decrease in national home sales for February, with prices remaining steady following a five-month decline since last fall. Chief Economist, Dr. Sherry Cooper pointed out that “it was noteworthy that prices remained unchanged from January to February, given that they dropped 1.3% from December to January”. Dr. Cooper explained that such shifts in pricing behavior are rare, occurring only three times in the past two decades, typically during periods of anticipated increased demand, including after the initial COVID slump in May 2020, before interest rate hikes in January 2022, and amid expectations of a rate pause from the Bank of Canada in April 2023. Following this pattern, the current accumulation of housing demand can be attributed to a growing population and fears among first-time homebuyers regarding sharp price growth once the Bank cuts interest rates.
As the demand for housing increases with each rise in rent, the upcoming spring housing season is expected to be strong, potentially before the Bank cuts interest rates. Economists expect the Bank to lower the interest rates by June given the economy's eased trajectory. The Bank of Canada will meet on April 10th for the next interest rate announcement. Stay tuned for more updates!
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