Economy appears stronger than expected!! The Inflation or CPI (Consumer Price Index) numbers for August are in and higher than expected at 4% (expectation was 3.8%) and up from July at 3.3%, not great news for Canadians or the policy or decision makers at the Bank of Canada.

Increase has been mainly driven by year over year increase in gasoline prices. The primary metrics used by the Bank of Canada (BOC) are going the wrong way and the term “sticky inflation” is gaining traction. We also need to look at our economy has had a lot of excess savings from the Covid pandemic period and over the past year Canadians have continued to spend this excess savings and the economy is starting to show signs this excess has been spent and overall spending appears to be slowing down.

All is not lost on the above statistics, we have employment/unemployment numbers coming our October 6 as well as GDP and another round of CPI numbers before the Bank of Canada releases is next policy decision on interest rates October 25.

In my opinion, a major factor in determining the BOC decision will be employment and unemployment numbers, released on Oct 6. If we see an increase in the unemployment numbers (i.e. more people losing jobs than jobs being created) this will demonstrate a slowdown in the economy and that the last year of interest rate increases are starting to gain hold and as a result the economy is slowing down and this will keep rates where they are for the foreseeable few months.

Expectation on rates, we may see short term fixed rates continue to increase, however if activity in the economy continues to slow, this could result in the Bank of Canada prime rate and fixed rates start to fall starting in the third quarter of 2024, so likely late summer/fall of next year.

Always happy to discuss further and advise on any specific needs, please reach out.