The Consumer Price Index (CPI) dropped to 4.3% in March from a year ago following a 5.2% increase in February. This was the lowest rise in inflation since August 2021. Compared to a year ago, Canadians paid more in mortgage interest costs, offset by a decline in energy prices.
The deceleration of inflation was mainly influenced by base year effects resulting from high prices in March 2022. One of the main contributors to these high prices was gasoline - rising to 11.8% from the previous month due to supply uncertainty after Russia’s invasion of Ukraine.
Mortgage interest costs went up 26.4% in March - a faster rate compared to 23.9% in February. This yearly increase was the largest on record as Canadians continued to renew and initiate mortgages at higher interest rates.
According to the Canadian Real Estate Association, home sales in March went up 1.4%. While rate hikes from the Bank of Canada (BoC) have been paused, homeowners and buyers are more at ease with the drop in fixed mortgage rates.
Some buyers are coming off the sidelines this spring season; however, the markets are very tight. In most regions of the country, the inventory of unsold homes is remarkably low while sellers wait for prices to increase.
In March, the number of newly listed homes dropped to 5.8% month-over-month - mainly from a large portion of major Canadian Census Metropolitan Areas (CMAs).
Currently, the new supply is at a 20-year low. The sales-to-new-listings ratio climbed up to 63.5% due to increased sales surpassing the number of new listings in March.
As inflation continues to fall, the Bank of Canada (BoC) expects to reach the 2% target by the end of 2024. However, the BoC stated that reaching the 2% target will not be easy as inflation falls slowly and service prices and wage growth stay elevated. Chief economist Dr. Sherry Cooper expects the BoC will “most likely hold rates steady for the remainder of this year and [does not expect] any rate cuts before then”.
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