Geoff Cowling, Realtor
484 Main Street V2A 5C5 Penticton, BC, Canada

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Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 1.1% in February year-over-year. The increase was again due to higher gasoline prices (5%). Excluding the volatile gasoline component, the CPI rose by 1%, which is down from 1.3% in January. Prices rose in all components of the CPI except for clothing and footwear. Growth in the Bank of Canada's three measures of trend inflation remained unchanged, averaging 1.7%. Canadian Inflation (Feb) - March 17, 2...021 Regionally, the CPI was positive in all provinces, led by Quebec (1.6%). In BC, CPI rose by 0.9% in February year-over-year, down from January's 1.1%. Strong price growth continued for health and personal care, shelter, and food. Transportation costs reported the first notable increase since the pandemic started. Gas prices were again the driving force behind inflation growth in February. It will continue to do so for the foreseeable future, as oil producers tighten supply. Despite this, the Bank of Canada has indicated that it will not raise rates until the economy is back at full employment and inflation is sustained at its 2% target rate.

Canadian Employment (Feb) - March 12, 2021 Canadian employment gained 259k jobs in February (1.4%, m/m), almost making up for the 266k jobs lost in the previous two months. This left the employment level 3.1% (-599k) below its February 2020 pre-pandemic level. The rise was largely in part-time employment with full-time positions continuing to see positive growth in February. Notable job gains were reported in Quebec (113k) and Ontario (100k), as both provinces began easing re...strictions in February. The only province to report negative job growth was Newfoundland and Labrador. The national unemployment rate decreased by 1.2 percentage points to 8.2%, which is the lowest rate since March 2020. In BC, employment grew by 27k (1.0%, m/m) in February, following a gain of 3k in January. The unemployment rate decreased from 8% to 6.9%, which is the lowest rate the province has recorded since February 2020. Meanwhile, in Vancouver, employment increased by 13.9k (1.0%,m/m), following a rise of 9.0k in the previous month. Compared to one year ago, employment in BC was down by 0.6% (-15K) jobs. Although national employment is still 599k below its pre-pandemic level, February's employment gain is a step in the right direction. Today's bounce-back signals that the economy is gaining momentum, as the vaccine rollout enters its next phase and public health restrictions ease. That being said, progress could be thwarted if a third wave of the pandemic forces another round of restrictions.

Bank of Canada Interest Rate Announcement - March 10, 2021 The Bank of Canada maintained its overnight rate at 0.25 per cent this morning, a level it considers its effective lower bound. The Bank reiterated what it calls "extraordinary forward guidance" in committing to leaving the overnight rate at 0.25 per cent until slack in the economy is absorbed and inflation sustainably returns to its 2 per cent target. The Bank projects that will not occur until 2023. The Bank is als...o continuing its quantitative easing (QE) program, purchasing at least $4 billion of Government of Canada bonds per week. In the statement accompanying the decision, the bank noted that while the near-term outlook for growth is strong, there remains considerable slack in the economy and employment is still well below its pre-COVID levels. Inflation is expected to move modestly higher, largely reflecting base-year effects and deep price declines in some goods and services at the start of the pandemic. The Bank of Canada was anticipating a second wave induced contraction of the economy in the first quarter of this year and so finds itself somewhat caught off guard by a vastly improved economic outlook and rising long-term bond yields. The massive $1.9 trillion COVID-19 relief package, the American Rescue Plan, recently passed by the US Congress and good news on the speed of US vaccinations has prompted a re-set of expectations in financial markets as higher economic growth and inflation gets priced into bond yields. While the Bank has continued its quantitative easing program aimed at holding Canadian long-term interest rates down, there is little it can do to combat the pressure on the Canadian yield curve from rising US long-term interest rates. Recognizing the much brighter economic outlook, the Bank may announce a tapering of its QE at its next meeting in April but will stick to its commitment to keep its policy rate on hold until 2023. That would mean a widening gap between fixed and variable mortgage rates over the next year as fixed mortgage rates rise alongside long-term interest rates.

Canadian Real GDP Growth (Q4'2020) -March 2, 2021 The Canadian economy expanded at a 9.6 per cent annual rate in the fourth quarter of 2020. Growth was led by increased government spending, business investment and investment in new home construction and renovations as well as a large change in business inventories as large drawdowns of inventory from previous quarters reversed. For 2020 as a whole, the Canadian economy shrank 5.4 per cent, the steepest decline since quarterl...y GDP data were first recorded in 1961. Interestingly, the households savings rate registered 12.7 per cent, the third consecutive quarter of double digit saving rate. Remarkably, total household savings in 2020 matched the cumulative savings of the previous seven years combined. That accumulated savings, and how it gets spent over the next year, will be a key component of what we expect to be a robust economic recovery in 2021. Following an unprecedented 2020, we expect the Canadian economy will enjoy two years of very strong growth with the economy expanding by 5 per cent this year and a 4.3 per cent in 2022. An expected acceleration of vaccinations appears to be on the immediate horizon. As that roll-out progresses, we expect pent-up spending throughout the economy to be unleashed, driving a strong economic recovery. While the Bank of Canada has not changed its commitment to keeping its overnight rate unchanged until 2023, there has been substantial upward pressure on long-term Canadian interest rates as markets price in a faster than expected recovery along with the impact of the $1.9 trillion US COVID-19 relief package. As 5-year government bond yields move higher, 5-year fixed mortgage rates have also started to rise from a record low average of 1.8 per cent to a still very low level of 1.95 per cent. For context, the average 5-year fixed rate prior to the onset of the COVID-19 pandemic was about 2.9 per cent.

Canadian Inflation (Jan) - February 17, 2021 Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 1.0% in January year-over-year. The increase was largely due to higher gasoline prices (6.1%). Excluding gasoline, the CPI rose by 1.3%, which is up from 1.0% in December. Prices rose in seven of eight components year-over-year in January. Growth in the Bank of Canada's three measures of trend inflation inched up slightly, averaging 1.5%. Regionally, the CPI... was positive in eight provinces, led by Newfoundland and Labrador (1.5%). In BC, CPI rose by 1.1% in January year-over-year, up from December's increase of 0.8%. Strong price growth continued for health and personal care and shelter. Home furnishings also pulled ahead in January on the heels of robust home sales. In contrast, gas prices continue to be a drag on BC's inflation. Inflation is expected to remain weak until the vaccine rollout becomes more widespread and health regulations across the country are relaxed. In the current environment, the Bank of Canada will continue to keep interest rates low.