The Bank of Canada adds to it. After a pause in March and April, the target for the overnight rate rises to 4.75%. With the gaze in the rear-view mirror, directed towards the resilience of the economy displayed in the first quarter, the central bank considers that its monetary policy is not restrictive enough. Nevertheless…
In its press release, the Bank of Canada refers to stronger-than-expected GDP growth in the first quarter, with “surprisingly strong and widespread” consumption growth even adjusted to take into account population growth inflated by immigration. She also adds to her astonishment that spending on interest-sensitive properties has increased and activity in the housing market has firmed up recently, with spring demand well felt in the resale market. As for the labor market, the tension is not decreasing. In short, “overall, excess demand in the economy seems more persistent than expected”.
Based on the accumulation of data, the Governing Council of the Bank of Canada will continue to assess the dynamics of core inflation and the outlook for inflation measured by the consumer price index. “He will specifically assess whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing practices are consistent with achieving the inflation target. »
Shortly before the announcement, Statistics Canada illustrated this tension in the job market, amplified by another decline in productivity in the first quarter, a fourth quarterly decline in a row. Company production nevertheless returned to growth after a contraction in the previous quarter, supported in this by an acceleration in the increase in hours worked, which continued to exceed that of production. Labor costs per unit of production thus rose for a fifth quarter in a row, under the combined effect of the growth in average compensation per hour worked and the decline in productivity.
But today…
As for the present moment and since the Bank of Canada is focusing its offensive on weakening demand, it would be relevant to situate this ninth increase in the key rate since March 2022 in the context of the recent tightening of credit conditions among financial institutions, which can easily amount to a 25 basis point hike or two depending on the degree of intensity. Added to this is the impact of quantitative tightening on the yield curve. And with, in the background, monetary austerity now making its full effect felt.
In its data on April inflation, Statistics Canada did not fail to highlight the full weight of the rise in interest rates in the accelerated increase in the cost of living. “Year-over-year, higher rent prices and mortgage interest costs contributed the most to April’s increase in the all-items consumer price index.” she writes. The federal agency pointed out that housing costs rose 4.9% year over year in April, after rising 5.4% in March.
“Canadians continued to pay more for the cost of mortgage interest in April (+28.5%) compared to April 2022, driven by an increase in the number of mortgages obtained or renewed at rates higher interest. In April, the context of rising interest rates could also have contributed to the growth in rental prices (+6.1%) by stimulating demand for rental housing. »
Moreover, Equifax Canada indicated on Tuesday that, despite the slowdown in the mortgage market, total consumer debt in the first quarter was up 4.9% compared to the same period last year, under the blow of ‘continued increase in credit card balances. In this segment, we measure an increase in sales of 14.5% compared to the first quarter of 2022.
Canada-wide, an additional 175,000 consumers started 2023 in default (90+ day arrears rates) related to at least one non-mortgage product, representing an increase of 18.8% from compared to the first quarter of 2022.
While the arrears rate is higher among consumers without a mortgage, “recent data shows a growing number of mortgage holders experiencing payment defaults on non-mortgage products, reflecting a 15.7% increase from compared to the first quarter of 2022. This year-on-year increase is almost double the rate observed in the previous quarter [8,9 % entre les quatrièmes trimestres de 2021 et 2022] “, underlines the agency.
Homeowners renewing their mortgage are bearing the full brunt of the sharp and rapid increase in the cost of money. “We are now starting to see more homeowners struggling financially, particularly following mortgage renewals, as payments increase significantly,” Equifax said, adding that the insolvency rate has increased. increased by 28.5% compared to the first quarter of 2022. This rate remains essentially in the form of proposals to creditors, which show an increase of 36.5%.