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The overnight swap market shows that the chances of the central bank raising borrowing costs by 0.75 percentage points on Sept. 7 are about 45%. This will raise the policy rate to 3.25 per cent, the highest level since April 2008.
Previously, 60 per cent of investors were betting on 75 basis points.
On Wednesday, U. S. consumer price index (CPI) data showed that annual inflation slowed to 8.5%, below economists’ expectations.
The US inflation data came as a surprise, prompting the market to reverse bets on interest rate hikes by the Federal Reserve and the Bank of Canada, arguing that policymakers may not need to tighten the financial environment as quickly or aggressively as previously expected to contain persistent price pressures.
Canadian inflation figures for July are due to be released next Tuesday. Canadian inflation rose 8.1 per cent in June from a year earlier, the highest level since early 1983.
If next week’s data show that inflation is slowing or are thought to have peaked, central bank governor Tiff Macklem and his officials may choose to raise interest rates by a smaller margin.
In July, the central bank raised interest rates by 100 basis points, which shocked the market. But many analysts believe it would be wiser to raise interest rates to restrictive levels.
Andrew Kelvin, senior Canadian strategist at TD in Toronto, said in an email: “the right thing for the Bank of Canada to do is to raise interest rates by 75 points. In the current inflation context, it is still quite cautious to rise to the top of the neutral range, but now the data seem to give them the option of raising interest rates by 50%.”
At the same time, for the mortgage market, which has been hit hardest by interest rate hikes, some analysts pointed out that five-year fixed lending rates may have peaked after reaching more than 5% in June.
Robert McLister, a wealth management analyst and columnist for Globe and Mail, wrote on Twitter this week that HSBC recently cut its uninsured five-year fixed rate to 4.79% from 5.09%.
He added on Wednesday that Canadian five-year bond yields had fallen and that the peak in June could be the peak of the cycle.
According to the English-language media CBC News, the cost of many commodities, such as wood, has recently begun to fall, showing a sign that rampant inflation may be coming to an end or provide some relief for those struggling with the soaring cost of living.
Mace Mortimer, co-owner of Calgary home builder Alloy Homes, says wood and frames account for 10 to 15 per cent of the cost of building new homes. “at the worst, the price of wood was about 300% higher than normal. Now the price has come down, and I think the peak is over.”
In addition to wood, many other commodities are also falling. For example, oil, one of the biggest drivers of inflation, has fallen by about 20 per cent a barrel since June.
Copper prices have fallen by about 25 per cent since march, while the value of many crops is also falling. Since may, the value of both talent and corn has fallen by 25%, while wheat has fallen by 40%.
In addition, real estate prices are also a major reason for the escalation of inflation across the country. Although rents are still high, house prices that soared during the pandemic are now on a downward trend in many Canadian cities.
Experts say Canada’s inflation may have peaked as oil, timber and real estate prices begin to fall, and should be cautiously optimistic. After looking at commodities, employment and real estate data, some economists expect inflation to start falling after reaching 8.1 per cent in June.
According to the Canadian news agency, Desjardins predicts that average house prices in Canada will fall by nearly 25 per cent by the end of 2023 from their peak in February this year.
Desjardins is a Canadian financial services cooperative and the largest federation of credit unions in North America.
In its latest residential real estate outlook released on Thursday, Desjardins said it expected a sharp correction in the housing market. The previous forecast was that average house prices would fall by 15% over the same period.
The Bank of Canada (Bank of Canada) raised its benchmark interest rate by a full percentage point in July, pushing up lending rates related to home mortgages.
The Desjardins report also noted that house prices fell by more than 4 per cent in the three months after February, when the national average reached a record 816720 yuan in February.
Despite adjusting its forecasts, Desjardins expects prices to remain higher than they were before the pandemic by the end of 2023.
Regionally, the largest price adjustments are likely to be in New Brunswick, Nova Scotia and Prince Edward Island, where house prices soared during the pandemic, the report said.
“this adjustment will help restore some sanity to the Canadian real estate industry,” the report said. ”
The report’s authors also point out that the upcoming economic slowdown will ease inflationary pressures enough for the Bank of Canada to stop raising interest rates. Desjardins expects the Canadian real estate market to stabilise later next year.