Canada’s Inflation is Cooling

After multiple years of relentless price hikes and financial uncertainty, a glimmer of hope is finally on the horizon as the economy gets ready to reset. StatsCan’s most recent inflation figures have been released, revealing a significantly more optimistic outlook than previously seen.

Remember when prices for everything, from groceries to gas, were skyrocketing? This chaotic phase may be coming to an end. The inflation rate dropped to a more manageable 2.5% in July, down from 2.7% in June. We’ve finally hit the brakes, letting the economy find a more stable pace.

This encouraging news brings a sigh of relief for many Canadians who have been feeling the pinch of rising costs. While we’re not entirely out of the woods yet, this slowdown in inflation signals a positive shift and offers a glimmer of hope for a more stable economic future and lower Canada mortgage rates.

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Key Takeaways

• Inflation is slower than before, the lowest we’ve seen in quite a while.
• The “core” inflation rate, which excludes volatile costs like food and energy, also shows a downward trend.
• Rent and mortgage costs play a significant role in the inflation problem, but there are indications that these expenses are starting to level off.

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Housing Costs Are Still a Pain

While the broader economic picture shows signs of improvement with easing inflation, the Canadian housing market remains a significant source of financial strain for many. Housing costs represent a substantial portion of household budgets, and unfortunately, these costs are still on the rise, particularly impacting renters.

The latest data reveals a concerning trend: mortgage interest costs (MIC) are still increasing despite recent interest rate cuts, placing additional pressure on homeowners. Meanwhile, rental prices are skyrocketing in several regions nationwide, reaching alarming levels in some provinces. Canadians feel the impact of rising costs, especially in housing, which makes up nearly 30% of the Consumer Price Index (CPI). In July, mortgage interest costs rose 21% compared to 22.3% in June. Rental prices rose 5.9% YoY, with Saskatchewan, for example, having seen a staggering 22% increase in rental prices year-over-year, followed by Alberta and Atlantic Canada at 15% and Manitoba at 12%.

This rental affordability crisis is a complex issue driven by various factors. Higher interest rates, while intended to combat inflation, have inadvertently contributed to higher mortgage costs, making homeownership less attainable for many and driving up rental prices. A growing population and a limited housing supply further exacerbate these market challenges.

Lower Rates Might Be on the Horizon

The encouraging signs of moderating inflation in Canada have strengthened the case for the Bank of Canada to implement another policy rate cut as early as their September meeting, allowing lenders to lower their prime rates. This move is supported by the positive headline inflation figures and the decline in the Bank’s preferred core inflation measures, which suggests a broader and more sustained slowdown in price pressures.

Several factors have eased inflation, including base-year effects and moderation in sectors like housing, travel, and automobiles. The Bank of Canada’s previous rate hikes have their intended effect, giving them the flexibility to loosen monetary policy further. We hope that the direction of inflationary pressures continues downwards, as September 2023 will present a more challenging comparison for base-year effects.

This prospect of lower interest rates could bring much-needed relief to Canadian homeowners facing rising mortgage costs. However, translating lower policy rates into lower mortgage rates might take some time, and the overall impact on housing affordability will likely be gradual.

The Canadian dollar has held its ground against the US dollar. It is trading higher today than at the start of the Bank of Canada’s rate-cutting cycle on June 5th, when it started the monetary easing cycle before the US Fed. This stability suggests market confidence in the likelihood of the Fed cutting rates.

With inflation seemingly under control, the Bank of Canada now has the opportunity to shift its attention to other pressing economic challenges. The labour market has shown signs of softening, and policymakers may need to consider measures to support job growth and overall economic activity.

What Does This Mean for You?

• Homebuyers, watch those interest rates! A drop could be your chance to dive into the housing market. Prequalification can be a way of setting yourself up on the right path forward.
• Homeowners, if your mortgage is about to renew, brace yourself for some unexpected payment shock. Check out nesto’s Prime Time special offer and save while you wait for rates to go down further.
• Renters, you should advocate for affordable housing options and consider all alternatives, including homeownership. If it is financially feasible, move while lower home prices still allow you to purchase your primary residence with mortgage default insurance.

The “Great Renewal” and Your Mortgage

Speaking of mortgages, there’s something else to consider. Many folks who got mortgages during the pandemic locked in super-low rates. But those rates are about to expire, and their payments could go way up when they renew.

As the Globe and Mail reported this week, this is where a company like nesto comes in. Nesto is an online lender looking to help people navigate this “great renewal” by offering competitive rates and a streamlined online experience. It might be worth checking if you’re facing a big jump in your mortgage payments.

Find out about your mortgage renewal shock:

• Calculate your potential payment increase: Use nesto’s online payment shock calculator to estimate how much your mortgage payments could increase at renewal.
• Get expert advice: Connect with a nesto mortgage expert to discuss your options and develop a personalized mortgage strategy.

The Bottom Line

While the cooling inflation trend is encouraging, suggesting that the Bank of Canada’s efforts bear fruit, it’s important to remember that the path to full economic recovery is long and winding. The potential for low interest rates and further cuts offers a glimmer of hope for Canadians burdened by high borrowing and housing costs. However, affordability remains a pressing concern, and the impact of any rate reductions on the housing market may take time to materialize.

Moreover, with inflation seemingly under control, the Bank of Canada now has the opportunity to shift its focus towards addressing other critical economic issues. The labour market, for instance, is showing signs of weakness, and fostering job growth will be crucial for sustained economic recovery. The July inflation report, while positive, serves as a reminder that the Canadian economy is still in a delicate state.

The current economic climate presents both opportunities and challenges. As inflation eases, lower mortgage rates and increased affordability can be predicted. However, the lingering effects of high inflation, rising rents, and a somewhat shaky economy suggest we stay vigilant. And if you’re one of the millions facing a mortgage renewal soon, keep an eye on those interest rates and don’t be afraid to shop around for the best deal.

Interested in learning the details of July’s inflation? Check out nesto’s latest inflation update. Remember, knowledge is power. Arm yourself with information and take control of your mortgage renewal. The best information starts with the best advice. Reach out to nesto’s mortgage experts and let us help you find the best mortgage rate in Canada.

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Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

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