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Interest Rates Expected to Remain at 5% After Inflation Rose to 2.9% in January

Interest Rates Expected to Remain at 5% After Inflation Rose to 2.9% in January

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    As the fight against inflation continues, Canada’s inflation rate in January 2024 rose to 2.9%. This figure came in much lower than the 3.3% gain that analysts were expecting.


    Key Takeaways

    • Canada’s inflation rate rose to 2.9% in January 2024. 
    • The largest contributor to deceleration was lower year-over-year prices for gasoline in January. 
    • After the CPI reading, rates are expected to remain unchanged at the March 6th Bank of Canada announcement. 

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    Inflation Slows

    The most recent inflation number of 2.9% was mainly due to year-over-year prices for gasoline, which fell 4% in January. 

    The latest data from Statistics Canada shows that the measures of core inflation, which the Bank of Canada closely monitors, remain elevated at 3.4% for CPI-trim and 3.3% for CPI-median.

    These figures have moved closer to the central bank’s inflation target of 2%. However, shelter continues to be the largest driver of inflation, up 6.2%.

    Shelter Continues to Climb

    Canadians continue to feel the impact of rising prices as shelter increased by 6.2% year-over-year. Interest rates continue to make homebuying more expensive, forcing many to stay in the rental market and creating a further surge in rental prices. Shelter costs continue to be the largest driver of inflation out of the 8 CPI components.

    March Rate Hike a Possibility?

    At the January 24th announcement, the bank held rates again at 5%, continuing its policy of quantitative tightening (QT). The Bank of Canada cited that higher interest rates have restrained spending, with consumption expected to remain close to 0 throughout the year’s first quarter. 

    A March rate hike doesn’t seem likely at this point. Instead, we are likely to see another pause at the next announcement. The Bank of Canada (BoC) has shifted its stance on whether rates need to be higher to when they might be lowered. The Governing Council has cited concerns about persistent underlying inflation and wants to see further easing in core inflation. 

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      How Does Canada Compare?

      When looking at global inflation rates, Canada’s 2.9% rate for January 2024 is in line with what the rest of the world is currently experiencing. US inflation came in slightly higher at 3.1% in January.  

      Frequently Asked Questions

      Welcome to our Frequently-Asked Questions (FAQ) section, where we answer the most popular questions designed and crafted by our in-house mortgage experts to help you make informed mortgage financing decisions.

      What is the inflation rate?

      The inflation rate is a measure of the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling. Central banks attempt to limit inflation to keep the economy running smoothly.

      Why is the inflation rate important?

      The inflation rate is an important economic indicator because it affects the value of money and indicates the health of an economy. A moderate rate of inflation is generally considered normal in a growing economy. However, high inflation can erode purchasing power and create economic uncertainty.

      How is the inflation rate calculated?

      The inflation rate is calculated by comparing the current Consumer Price Index (CPI) to the CPI in a previous period. The CPI measures the average change in prices over time that consumers pay for a basket of goods and services.

      Final Thoughts

      The January 2024 inflation rate of 2.9% in Canada may mean that the economy is finally feeling the impacts of monetary policy. The BoC will likely maintain a pause in rates at the March announcement. However, they will continue to monitor the situation closely and make adjustments in the future, if necessary, in an effort to keep inflation within the target. 

      Whether you’re a homeowner with a mortgage, a renter, a business owner, or simply a consumer, it’s important to keep an eye on the inflation rate and understand what it means for you. As we move into the spring lending season, it will be interesting to see how the Bank of Canada responds to these latest inflation figures and what that might mean for the Canadian economy.

      If you’re a homeowner or homebuyer, shopping around for the best mortgage that fits your goals can be challenging. Contact nesto’s mortgage experts and learn how you can turn this challenge into an opportunity to save on your mortgage or renewal.


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