1. Canadian Inflation Returns to 2% and a Rate Cute to 4.25%
The Bank of Canada recently achieved its inflation target, with the Consumer Price Index(CPI) rising by 2.0% year-over-year in August, the slowest since February 2021(Statistics Canada, 2024). This deceleration was mainly driven by a drop in gasoline prices, with core inflation, excluding gasoline, also easing to 2.2%.Despite the positive progress, Governor Tiff Macklem stressed the importance of maintaining price growth within the 1-3% target range. Mortgage interest and rental costs continued to be significant contributors to inflation, although their growth has slowed (The Canadian Press, 2024; Statistics Canada, 2024).
In response to the easing inflation, the Bank of Canada has made its third consecutive interest rate cuts on September 4, 2024, bringing the key rate down to 4.25% (The Canadian Press, 2024). However, some economists believe further cuts are needed to stimulate the economy and tackle rising unemployment. CIBC forecasts an additional 200 basis points in reductions by mid-next year (Benchetrit, 2024). The bank’s cautious approach reflects the need to support economic recovery while closely monitoring inflation trends.
Despite hitting the inflation target, many Canadians still face high prices. The Bank of Canada aims to stabilize future price increases rather than revert to pre-pandemic levels. Regional trends indicate that inflation has slowed in all provinces, with the monthly CPI falling by 0.2% due to lower costs in air transportation, clothing, and travel tours. Grocery prices rose by 2.4%year-over-year, influenced by base-year effects, though they decreased on a month-over-month basis in August (Statistics Canada, 2024).
2. The Canadian Housing Market: Rising Starts, Shifting Trends, and Policy Responses
In the first half of 2024, Canada saw an increase in housing starts in its six largest cities, with a 4% rise totalling68,639 new units, the second-highest level since 1990. Despite this uptick, the numbers fall short when adjusted for population growth, indicating that the supply still does not meet the growing demographic demand (Canada Mortgage andHousing Corporation, 2024). Regional variations reveal Calgary and Edmonton leading this growth, benefiting from strong interprovincial migration, favourable economic conditions, and greater affordability. In contrast, cities likeToronto, Vancouver, and Ottawa experienced declines, reflecting regional differences in economic factors and housing affordability challenges.
The market is also shifting toward rental housing, as nearly half of the new apartments started in 2024 were purpose-built rentals, the highest share on record (Canada Mortgage and HousingCorporation, 2024). This trend highlights the impact of declining homeownership affordability and changing demographics. However, developers face challenges, particularly in condominium development, due to high-interest rates and rising construction costs. In most cities, except Calgary and Edmonton, developers struggle to meet pre-sales thresholds, causing some rental projects to become financially unviable. Increased competition from condominium rentals, particularly in cities like Toronto and Ottawa, has also complicated the market dynamics.
To address housing affordability, the federal government on August 1, 2024, introduced changes to mortgage rules, allowing 30-year insured mortgage amortizations for first-time homebuyers.Finance Minister Chrystia Freeland announced on September 16, 2024 an increase in the cap on insured mortgages from $1 million to $1.5 million and extended the 30-year amortization period to all first-time homebuyers and buyers of newly built homes (Reuter, 2024). While these changes aim to make homeownership more accessible, analysts have mixed reactions. Some believe the new measures will help first-time buyers, while others caution that stimulating demand could push prices higher and worsen long-term affordability. Critics argue that these policy changes are short-term fixes that do not address deeper issues, such as labour shortages in construction and high building costs, emphasizing the need for amore comprehensive approach to solve the housing crisis (Reuter, 2024).
3. Canada Extends Cap on International Students
OnSeptember 18, 2024, the Canadian government decided to extend its cap on international student enrolment through 2025 and 2026, reducing the cap by 10%from 2024 levels. The new cap includes master’s and doctoral students, reserving approximately 12% of allocation spaces for them due to their contribution to the labour market (ICEF Monitor, 2024). Additionally, changes to the Post-Graduate Work Permit (PGWP) program will limit automatic qualification for a three-year permit to graduates whose employment aligns with high-demand labour market areas. These measures have led some experts and institutions to express concern that they may limit Canada’s ability to attract top international talent, potentially affecting innovation and skilled labour in key sectors (ICEF Monitor, 2024).
In 2022, international students significantly contributed to Canada’s economy, spending around $37.3 billion and supporting 361,230 jobs. This spending represented1.2% of the country’s GDP and international education services accounted for23.1% of Canada's total service exports (Government of Canada, 2022). WithOntario, British Columbia, and Quebec receiving the most economic benefit, the cap and changes to the PGWP could potentially impact these regions' revenue and labour markets. While the cap aims to address housing and healthcare capacity challenges, it introduces uncertainty regarding the future economic contributions of international students to Canada.
Financial Tip of the Month: Start Planning for Tax Season
As we near the end of the year, start to organise your finances for tax season.Gather any receipts for deductions, contributions to retirement accounts, charitable donations, or medical expenses. Early preparation can help maximize your tax refund or reduce any potential liabilities.
At Alpen Investment Advisors, your trusted North Vancouver iA Investia team, we are committed to keeping our valued clients informed. We trust that you have found this market recap informative and insightful. Please do not hesitate to reach out to your dedicated financial advisor, jonathan@alpenia.ca for any questions about your portfolio or to help navigate the process of growing and preserving your wealth.
References:
Benchetrit, J.(2024, September 17). Canada’s inflation rate finally hit the bank ofCanada’s target. what does that mean for prices? | CBC News. CBC News. https://www.cbc.ca/news/business/inflation-bank-of-canada-target-1.7325365
The Canadian Press.(2024, September 25). Bank of Canada needs to “stick the landing” now thatinflation is at 2%. CBC News. https://www.cbc.ca/news/business/macklem-bank-inflation-1.7333482
Government ofCanada. (2024, June 25). Economic impact of international education inCanada — 2022 update. https://www.international.gc.ca/education/report-rapport/impact-2022/index.aspx?lang=eng
Housing starts inmajor Canadian cities show mixed trends. Canada Mortgage and Housing Corporation. (2024,September 26). https://www.cmhc-schl.gc.ca/blog/2024/housing-starts-major-canadian-cities-show-mixed-trends
ICEF Monitor.(2024, September 25). Canada announces updates for foreign enrolment cap andpost-study work rules. https://monitor.icef.com/2024/09/canada-announces-updates-for-foreign-enrolment-cap-and-post-study-work-rules/
Statistics Canada.(2024, September 23). Consumer price index, August 2024. https://www150.statcan.gc.ca/n1/daily-quotidien/240917/dq240917a-eng.htm
