29 Feb

Canadian Inflation Falls to 2.9%, Boosting Rate Cut Prospects

General

Posted by: Karli Shih

 

The Consumer Price Index (CPI) rose 2.9% year-over-year in January, down sharply from December’s 3.4% reading. The most significant contributor to the deceleration was a 4% decline in y/y gasoline prices, compared to a 1.4% rise the month before. Excluding gasoline, headline CPI slowed to 3.2% y/y, down from 3.5% in December.

Headline inflation of 2.9% marks the first time since June that inflation has moved into the Bank of Canada 1%-to-3% target band and only the second time to breach that band since March 2021.

Grocery price inflation also decelerated broadly in January to 3.4% y/y, down from 4.7% in December. Lower prices for airfares and travel tours also contributed to the headline deceleration. Prices for clothing and footwear were 1.3% lower than levels from a year ago, potentially reflecting the discounting of winter clothing after a milder-than-usual winter in much of the country.

The shelter component of inflation remains by far the largest contributor to annual inflation. The effect of past central bank rate hikes feeds into the CPI with a lag. The y/y growth in mortgage interest costs edged lower in January but still posted a 27.4% rise and accounted for about a quarter of the total annual inflation. Inflation, excluding mortgage costs, is now at 2.0%. Home rent prices continue to rise, but another component under shelter – homeowners’ replacement costs inched lower on slower house price growth.

On a monthly basis, the CPI was unchanged in January, following a 0.3% decline in December. On a seasonally adjusted monthly basis, the CPI fell 0.1% in January, the first decline since May 2020.
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 three ticks to 3.4%, and the median declined two ticks to 3.3% from year-ago levels.

Notably, the share of the CPI basket of goods and services growing at more than 5% has declined from the peak of 68% in May 2022 to 28% in January 2024.
Bottom Line

The next meeting of the Bank of Canada Governing Council is on March 6. While January’s inflation report was better than expected and shows that the breadth of inflation is narrowing, it is still well above the level consistent with the 2% inflation target.

Shelter inflation will remain sticky as higher mortgage rates over the course of last year filter into the index and the acute housing shortage boosts rents.

The Bank of Canada will remain cautious in the face of still-high wage gains and core inflation measures above 3%. I hold to my view that the Bank will begin cutting rates in June.

 

Dr. Sherry Cooper

Image Credit: Yvonne Assen, Unsplash

7 Feb

Estate Planning: Are Those You Care About Covered?

General

Posted by: Karli Shih

 

“New Year, new you” may be a cliché, but a new year really can get us thinking about where we are now and where we want to go. When it comes to your personal goals, a review of your finances and estate might be close to the top of your list. A little advance planning can go an incredibly long way to cover those you care about.

Your will outlines your assets and determines how they will be distributed, as well as who will oversee the process. Key components included in this document are:

  • Guardians and alternates in case backups are required
  • Up to date list of your significant assets and their location
  • Beneficiaries and how much each receives, including charities and other organizations
  • Alternates in case your named beneficiaries predecease you
  • Planning to limit probate fees via insurance policies, trusts, or RRSPs for example
  • Your executor who will carry out your wishes, or two or more co-executors can be named. Alternates are also listed
  • Regular reviews are important as things change, births, deaths or marriages in your circle may mean your plan will need to evolve too

Another important (and often overlooked!) aspect of estate planning involves naming someone to make decisions for you should you become unable to do so due to injury or illness, whether temporary or otherwise.

If you have a mortgage, you’ll want to consider Mortgage Life and Disability Insurance alongside your will.

Manulife Mortgage Protection Plan (MPP) is portable life and disability insurance that helps protect your loved ones and your home should something unexpected happen to you.  It protects your family’s future by paying out your mortgage should one of the mortgage holders pass away. It also covers your mortgage payments while the claim is being adjudicated, so there is no added stress for a loved one at an already difficult time.

MPP also covers your mortgage payments and property taxes if you are unable to work due to an illness or accident.  Disabilities from sickness and accidents are unfortunately relatively common and will affect 1 in 3 borrowers at some point in the duration of their mortgage.

Mortgage insurance does insure a declining balance, but your payments can be reduced on request as your balance decreases as well.  Furthermore, MPP payments don’t increase as you age.

Unlike bank insurance, MPP is portable from lender to lender and property to property.  To ensure you have both coverage and the flexibility to transfer from lender to lender, a mortgage insurance product like MPP gives you that freedom to move.  Bank insurance policies are not portable across lenders, and switching insurers typically means increases to your payments.  As such, it’s best to begin with a portable insurance product, such as MPP.

Mortgage disability insurance will take care of your mortgage payments plus property taxes if you become disabled.

If you don’t already have sufficient coverage in place, reach out and I would be happy to show you how you can add MPP to your mortgage for free for the first two months of coverage while you compare other options.  There is no obligation to continue and no penalty to cancel at any time.

Coverage is subject to insurer approval, terms and conditions apply.

There are many facets planning for your future when you own property and finance it with a mortgage.  Regardless of property ownership, planning for the future ensures your estate and family will be provided for should the unexpected something happen.

As always, let me know if I can provide any further information, I’m always happy to help.

 

Adapted from DLC Marketing

Image Credit: Helena Lopes, Unsplash