Residential Market Commentary - Mood Changing at Bank of Canada

The latest statistics indicate the Canadian economy remains resilient in the face of continuing inflation pressures and on-going uncertainty.  But the Bank of Canada has its doubts. 

The latest Gross Domestic Product reading shows the economy grew by 0.3% in May.  GDP growth for April was revised upward to 0.6%, while the flash forecast for June came in with a 0.2% boost.  That puts the economy on track for a 3.4% increase for the second quarter, which would be the best quarterly growth in more than three years. 

Other indicators look good as well.  The inflation rate dipped 40 basis-points, to 2.8%, in June.  The addition of 18,000 new jobs in June pushed the unemployment rate down to 6.5%. 

The latest Summary of Deliberations from the Bank of Canada suggests some members of the Governing Council now have concerns about how long the economy can stay the course. 

The key variable continues to be oil prices.  The volatility of the war in Iran has seen oil prices spike as high as US$120 a barrel, pushing headline inflation to 3.2% in May.  There are worries that persistently high oil prices could start to affect core inflation, triggering rate increases by the central bank. 

Trade turmoil with the United States remains bothersome and there are domestic concerns, including the housing market. 

"The recovery in housing activity could stall given the large inventory of condos in Toronto and Vancouver, low population growth and ongoing affordability challenges." 

Most market watchers believe there will be no change to the BoC Policy Rate before the December setting.  The rate currently stands at 2.25%. 

- First National Financial LP