Excluding shelter, core inflation falls to 1.7%, increasing the odds if a rate cut at June 5 meeting.

Canadian Inflation Eased Again in April, Raising the Chances of a June Rate Cut

The Consumer Price Index (CPI) rose 2.7% year-over-year (y/y) in April, down from 2.9% in March. This marks the fourth consecutive decline in core inflation. Food prices, services, and durable goods led to the broad-based deceleration in the headline CPI.

The deceleration in the CPI was moderated by gasoline prices, which rose faster in April (+6.1%) than in March (+4.5%). Excluding gasoline, the all-items CPI slowed to a 2.5% year-over-year increase, down from a 2.8% gain in March.

The CPI rose 0.5% m/m in April, mainly due to gasoline prices. On a seasonally adjusted monthly basis, it rose 0.2%.

While prices for food purchased from stores continue to increase, the index grew slower year over year in April (+1.4%) compared with March (+1.9%). Price growth for food purchased from restaurants also eased yearly, rising 4.3% in April 2024, following a 5.1% increase in March.

According to Bloomberg calculations, the three-month moving average of the rate rose to an annualized pace of 1.64% from 1.35% in March. That’s the first gain since December.

The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed to 2.9% y/y in April, and the median declined to 2.6% from year-ago levels, as shown in the chart below. Rising rent and mortgage interest costs account for a disproportionate share of price growth, with shelter costs up 6.4% year-over-year. Growth in mortgage interest costs slightly decreased in April but remained 24.5% higher than a year ago.

The breadth of inflationary pressures narrowed again in April, with the proportion of the CPI basket experiencing growth exceeding 3%, decreasing to 34% from 38% in March.

Bottom Line

April’s inflation readings largely met expectations but with underlying details (including further slowing in the BoC’s preferred ‘core’ measures) pointing to a further reduction in inflationary pressures. The Bank of Canada is as concerned about where inflation will go in the future as where it is right now. Still, Canada’s persistently softer economic backdrop (declining per-capita GDP and rising unemployment rate) increases the odds that price growth will continue to slow. The case for interest rate cuts from the Bank of Canada continues to build. The central bank has every reason to cut rates at their next meeting on June 5. Still, given the BoC’s extreme caution, we must consider the possibility that they will wait until the July meeting to take action, and only if inflation continues to recede.

Dr. Sherry Cooper

Alternative Lending: Managing Mortgage Affordability.

If you’re seeking a mortgage, but your application doesn’t fit into the box of the big traditional institutions, you’ll find yourself in what’s commonly referred to in the industry as the “Alternative-A” or “B” lending space.

These lenders come in three classifications:

Alt A lenders consist of banks, trust companies, and monoline lenders. These are large institutional lenders that are regulated both provincially and federally but have products that may speak to consumers who require broader qualifying criteria to obtain a mortgage.
MICs (Mortgage Investment Companies) are much like Alt A lenders but are organized following the Income Tax Act with an incorporated lending company consisting of a group of individual shareholder investors that pool money together to lend out on mortgages. These lenders follow individual qualifying lending criteria but tend to operate with an even broader qualifying regime.
Private Lenders are typically individual investors who lend their funds but can sometimes also be a company formed specifically to lend money for mortgages that carry a higher risk of default relative to a borrower’s situation. These types of lenders are generally unregulated and tend to cater to those with a higher risk profile.

Managing mortgage affordability in the alternative lending landscape requires careful consideration of several factors to ensure financial stability and avoid potential risks. Here are some strategies to help:

Assess Your Financial Situation: Evaluate your income, expenses, debts, and savings to determine how much you can afford to borrow. Consider your credit score and history, as alternative lenders may have different requirements than traditional lenders.
Research Alternative Lenders: Review the above alternative lending options with help from your Dominion Lending Centres mortgage expert. Compare interest rates, fees, terms, and eligibility criteria to find the best fit for your financial needs and situation.
Understand Loan Products and Terms: Familiarize yourself with different types of mortgage products offered by alternative lenders, such as adjustable-rate mortgages (ARMs), interest-only loans, and balloon mortgages. Pay attention to the terms of the loan, including the interest rate, loan duration, prepayment penalties, and any potential changes to the monthly payment.
Calculate Affordability: Discuss with your mortgage broker to estimate your monthly mortgage payment based on the loan amount, interest rate, and term. Consider other homeownership costs, such as property taxes, homeowners insurance, private mortgage insurance (PMI), and maintenance expenses, when calculating affordability to ensure you do not over-extend.
Budget and Plan for the Future: Create a budget that accounts for your mortgage payment and other housing-related expenses while leaving room for savings and unexpected costs. Plan for potential changes in your financial situation, such as job loss, salary changes, or interest rate increases, by building an emergency fund and having a contingency plan.
Get Pre-Approved: Obtain pre-approval through your mortgage broker to determine how much you can borrow and demonstrate your seriousness as a buyer. Be prepared to provide documentation of your income, assets, debts, and credit history during the pre-approval process.
Seek Professional Advice: Consult with me Ram Dhunna of Dominion Lending Centres First Pacific Mortgage Expert who can provide personalized guidance and help you navigate the alternative lending landscape.

By carefully managing mortgage affordability, whether within alternative lending or traditional, you can make informed decisions that support your homeownership goals while mitigating financial risks.

Month: May 2024

Alternative Lending: Managing Mortgage Affordability.