The Consumer Price Index (CPI) went up 2.8% year-over-year in June compared to the 3.4% gain in May. The deceleration was mainly due to lower gasoline prices. Grocery and mortgage interest costs remained elevated in June - contributing the most to headline inflation. According to the Canadian Real Estate Association, the unexpected rate hike early in June slowed the housing market down after a rise in activity two months into spring. Home sales rose to 1.5% between May and June. British Columbia and Alberta were the main contributors to the increase in sales last June. This is mainly due to booming home construction and population growth in Calgary. The actual (not seasonally adjusted) number of transactions in June rose 4.7% compared to a year ago. The CREA’s Senior Economist, Shaun Cathcart, says that moderate price growth with slight upward pressure is expected for a while - with prices staying below than in the last three months. In June, the number of newly listed homes went up 5.9% compared to the previous month. Adding on to gains in April (3.1%) and May (7.6%), new listings are slightly below average going into summer. The sales-to-new listings ratio dropped from a 68.3% peak in April to 63.6% in June - remaining well above the 55.2% long-term average. The Aggregate Composite MLS® Home Price Index (HPI) went up 2% in June on a monthly basis- following similar gains in April and May. Similar to the previous month, this was broadly based and a significant increase for a single month.
The CREA says that uncertainty has returned to the housing market after the Bank of Canada put an end to the paused rate hikes in June and increased them again in July.
Despite being within the target range of 1% to 3%, June’s inflation report is insufficient for the Bank of Canada to ease its strict measures. The Bank will need to tread carefully in the coming months as they try to find the balance between keeping interest rates high enough to maintain inflation, but not too high that it causes a recession. The BoC will continue monitoring inflation to ensure they achieve their 2% target. Another CPI report will be released before the interest rate announcement on September 6th.
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