Lower inflation paves the way in which for rate of interest cuts
Canadians dreading their spring and summer mortgage renewals got some excellent news this week as Canada’s annual inflation rate fell to 2.8%.
Statistics Canada’s report said slower growth in cellular phone charges, groceries and web bills were the major reasons the patron price index (CPI) got here in significantly lower than the three.1% reported by economists.
Key takeaways from Tuesday’s StatCan report are:
- Rent and mortgage costs remain the major drivers of inflation. Without taking accommodation costs under consideration, the patron price index has only increased 1.3% from a 12 months ago.
- Gas prices rose 4% in February from January and were a key reason for economists’ 3.1% inflation forecast. If prices fall again (which is the trend), inflation would proceed to be disinflationary.
- Notably, cellular phone rates are down a staggering 26.5% in comparison with last February.
- Although food prices have risen 22% within the last three years, it seems that we’re finally reaching equilibrium. In February, the patron price index for food was below the overall consumer price index for the primary time in two years.
- Restaurant meals, property taxes and electricity were outliers above the three% CPI mark.
- The Bank of Canada’s (BoC) preferred measures of core inflation are also easing, falling to an annualized 2.2% over the past three months.
If we use rate of interest swaps to evaluate the likelihood of a rate cut, it comes out to something like this 80% The likelihood that the BoC will cut rates in June is increasing (from 50% before the CPI numbers were released). (Interest rate swaps are essentially a way for the free market to take a position or bet on what rates of interest will likely be at any given time.)
On an analogous note, because the likelihood of rate of interest cuts increases, the worth of the Canadian dollar declines. The CAD hit a 3-month low on Tuesday. Overall, this is nice news for mortgage holders, bad news for USD-paying snowbirds.
By comparison, Japan raised rates of interest this week for the primary time in 17 years, ending the world’s last negative rate of interest policy. The Eurozone also released its inflation data this week and, much like Canada, it also surprised negatively as inflation fell from 3.1% to 2.8%.
This week each the US Federal Reserve and that Bank of Canada reiterated plans for rate cuts later within the 12 months. This is how mortgage rates react.
Weak earnings for Power Corp and Alimentation Couche-Tard
It wasn’t exactly a stellar week for Canadian heavyweights Power Corp and Alimentation Couche-Tard.
Canadian earnings highlights of the week
While Power Corp reports in CAD, Couche-Tard reports in USD.
Couche-Tard shares fell 4.2% on Thursday following the earnings release. ATD President and CEO Brian Hannasch stated that the lower-than-expected profits were primarily as a consequence of lower customer traffic and gross fuel margin within the United States. He further spoke about how easily the combination of the TotalEnergies acquisition goes and that the corporate is happy to expand Couche-Tard’s convenience store network to 4 recent countries and a couple of,175 stores.
Power Corp shares didn’t suffer quite the identical fate as Couch-Tard, rising 1.4% on Thursday despite the numerous earnings miss. It seems that a Dividend increase of seven.1% was enough to allay any fears that the corporate was underperforming its current valuation.
