According to StatsCanada, Canada’s consumer price index (CPI) went up 7.7% year over year in May compared to 6.8% in April. This is a record-high yearly increase since January 1983 - further pushing the BoC (Bank of Canada) to tighten monetary policy in order to combat inflation. The goal is to bring inflation back down to target by adjusting the key policy rate. When the BoC meets on July 13th, we can likely expect another rate hike. Economists are predicting a 75 basis point hike, raising the policy rate up to 2.25% from the current 1.50%.
It is no surprise that the largest contributor to the acceleration in May was higher gasoline prices- climbing up to 12.0% compared to April 2022. The demand for services such as hotels, restaurants, and travel continue to grow in response to eased COVID-19 restrictions.
Comparing to January 2022, mortgage rates have increased rapidly from 1.5% to nearly 5% for 5-year fixed rates whereas variable rates are expected to be at 4%-4.5% by year-end.
Chief economist, Dr. Sherry Cooper wrote in her article, “as the economy's most interest-sensitive sector, housing is the key transmission mechanism for tighter monetary policy to slow the economy and bring inflation under control.”
The next BoC meeting is on July 13th, 2022, stay tuned for any rate updates!
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