The Consumer Price Index (CPI) rose 6.7% year over year in March after rising 5.7% year over year in February, according to Statistics Canada. It was the third consecutive month the CPI has been over 5%; the last time the CPI was over 5% was in 1991. It was the 12th consecutive month that inflation has exceeded the Bank of Canada’s (BoC) target range of 1% to 3%. Price increases were broad-based in March. Excluding the volatile food and energy categories, the core CPI was up 3.8% year over year in March after being up 3.5% in February. On a monthly basis the CPI was up 1.4% in March, the largest monthly increase since 1991. Some economists believe that inflation peaked in March but do not expect to see any significant easing due to the war in Ukraine and the CV19-related slowdown in China.
Bank of Canada Raises Rates 0.5%
The Bank of Canada (BoC) raised interest rates 0.5% in April after raising them 0.25% in March, bringing the rate to 1.0%. It was the bank’s first rate increase greater than 0.25% in decades. Demand is still outpacing supply. The BoC forecast that the economy will grow by 4.2% this year and another 3.2% next year; it pegs capacity growth at about 2%. The situation in Canada mirrors the issues in the US. Demand bounced back much faster than anticipated. Prices and inflation jumped amid efforts to meet demand while dealing with all of the supply and labour issues caused by the pandemic. Inflation is being further exacerbated by Russia’s war on Ukraine and the slowdown in China.
GDP Climbs 1.1% in February
GDP rose 1.1% in February after inching up just 0.2% in January. The increase was well above economists’ expectations and took GDP to a one-year high. Both services-producing (+0.9%) and goods-producing (+1.5%) industries were up as 16 of 20 industrial sectors expanded in February. The construction sector expanded 2.7% in February as all subsectors contributed to the growth. Residential building construction rose 3.7% in February, led by home alterations and improvements and construction of apartment buildings. It was the second consecutive monthly increase. Non-residential building construction increased 1.4% in February, representing its eighth consecutive gain, with alterations and improvements contributing the most to the gain. Following 3.0% growth in January, retail trade edged down 0.2% in February, as 7 of 10 subsectors decreased. Excluding motor vehicle and parts dealers, retail trade rose 0.8%.
Housing and Construction News
Canadian housing starts fell 2% in March to 246,243 units after rising to 247,256 units in February, according to Canada Mortgage and Housing Corp. (CMHC). A decline in multiunit urban starts outweighed a gain in single-family starts. Despite the decline, the level of starts still remains historically high. Supply chain issues and labour shortages continue to impact construction and have brought some developments to a standstill.
Home sales fell 16.3% in March and prices rose 11.2% compared to March 2021, according to the Canada Real Estate Association (CREA). On a seasonally adjusted basis, home sales in March were down 5.4% compared to February and the number of newly listed homes fell 5.5%. The national average home price was a record $796,068 in March, up from $715,696 in March 2021. Excluding Greater Vancouver and Greater Toronto, two of Canada’s most active and expensive housing markets, drops the national average price by $163,000.
CMHC expects home sales and price growth to continue this year but fall more in line with historical averages by late 2023 or early 2024. However, price growth will remain positive, so prices will remain high. That means home ownership affordability will decline as mortgage rates rise and price growth exceeds income growth. CMHC also says housing starts will moderate from 2021 highs but remain above historical averages.
Prime minister Justin Trudeau pledged to double the current rate of new home construction over the next decade in order to help meet growing demand. In recent years Canada has averaged about 200,000 new homes annually. There are now nearly 300,000 units under construction, up from 240,000 two years ago. The goal is to stabilize the real estate market and make more affordable homes available in major cities. One of the first steps he took was banning most foreigners from making massive investments. Canada continues to face a shortage of skilled labour and low interest rates that encouraged investment. Trudeau easily won reelection the end of April so will be able to continue to push his agenda forward.
Retail Sales Rise Again
Retail sales inched up 0.1% in February to $59.9 billion after rising 3.2% to $58.9 billion in January. It was the fourth increase in sales in the past five months. Sales were up in 6 of the 11 subsectors, representing 47.2% of retail trade. Core retail sales, which exclude sales at gasoline stations and motor vehicle and parts dealers, increased 1.4%. In volume terms, retail sales were down 0.4% in February. Sales at building material and garden equipment and supplies dealers rose 5.6% after rising 10.9% in January. It was the sixth increase in this category in the past seven months. Sales were up in four provinces but fell in Newfoundland, Labrador, British Columbia and Quebec.
Retail Ecommerce Sales Fall
On a seasonally adjusted basis, retail ecommerce sales were down 4.6% in February after rising 8.3% in January. On an unadjusted basis, retail ecommerce sales declined 23.1% year over year to $2.6 billion in February, accounting for 5.3% of total retail trade. The share of ecommerce sales out of total retail sales fell 2.0% compared with February 2021, when many retailers were mandated to close their brick-and-mortar stores to in-person shopping in several regions across the country.
A Teamsters group representing about 7,000 Amazon fulfillment center workers across Alberta and the Northwest Territories filed an application with the Labour Board to hold a vote for union representation. The effort is the Teamsters' second attempt at forming a union at the Amazon site in Nisku and comes on the heels of the union’s first successful attempt in the US.
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