Wednesday’s interest rate announcement from the Bank of Canada, GDP data from Statistics BC and monthly reports from real estate boards are key to monitoring developments in the economy
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On Wednesday, the Bank of Canada is expected to raise its overnight interest rate again in an attempt to contain the rise in the cost of living, aka inflation.
The logic is that prices rise because demand for goods and services exceeds supply. So a rise in interest rates makes money more expensive and people will borrow less to buy things and thus reduce demand. A knock-on effect, which the government does not oppose, is a fall in property prices.
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The trickiest part for the Bank of Canada – and other banking agencies around the world – is getting the right rate hikes, bearing in mind that this is a very brutal economic tool. .
Go too slowly and inflation gets out of hand. Go too fast and the sudden drop in demand leads to a recession.
Even Jeff Bezos – one of the richest men in the world – is warning people right now to “batten down the hatches”.
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Here are five economic indicators to watch in British Columbia over the coming months:
INTEREST RATE
According to Coast Capital Savings Credit Union, central banks around the world have raised interest rates over the past six months, although rate hikes have been faster and more frequent in the United States and Canada.
In September, the Bank of Canada raised its overnight interest rate for the fifth time since March (from 0.5% to 3.25%).
September’s rise was 0.75%, with economists predicting Wednesday’s rise would also be 0.75%.
Each year, approximately 20% of mortgages mature. This means that over the next year, tens of thousands of BC homeowners will have to remortgage at rates likely to be higher than when they signed up. Thus, monthly payments will increase, and if the owner has a fixed income, then something has to give.
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Coast Capital expects interest rates to continue to rise over the next 16 months. Bank of Canada statements can be viewed here. After Wednesday’s interest rate announcement, the next date set by the Bank of Canada to adjust interest rates is December 7.
STATISTICS BC DATA
Statistics BC continually releases data related to BC’s economic strength, including gross domestic product, inflation and housing starts.
According to Chartered Professional Accountants Canada, a recession is defined as two three-month periods of declining economic activity, and the association believes that Canada could slip into a recession in 2023 (however, this will not be accompanied by a a high unemployment rate that usually accompanies a recession.)
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The CD Howe Institute’s Business Cycle Council meets when economic conditions dictate that Canada may enter a recession. It has released nine reports since October 2012. The council’s most recent report was released in August 2021 during the grip of COVID-19, when the Canadian economy had plunged into a short recession. In this report, the council declared the recession over.
The council is expected to meet shortly to determine if Canada slips back into recession and this is a report to watch.
University of British Columbia economics professor Giovanni Gallipoli said that to determine whether an economy is in recession, it is not enough to look at GDP growth in consecutive quarters.
“Using employment and unemployment information is a good way to refine that information,” he said. “In addition, one could use information on asset prices and changes in household financial and non-financial wealth/debt.”
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Gallipoli said Canadian economists “fully expect a recession in the new year.”
INFLATION RATE
British Columbia released its latest inflation numbers on October 19, showing it was 7.7% higher than September 2021 and 0.5% higher than August 2022. Excluding the cost gasoline and food, inflation was 6.5%.
The cost of food has risen nearly 10% in British Columbia since the same period last year, with prices for food purchased from stores rising more than prices for meals purchased from restaurants. The price of coffee and tea jumped 20%.
Canada’s unadjusted inflation rate in September was 6.9%, so British Columbia’s inflation position is slightly worse.
Tiff Macklen, Governor of the Bank of Canada, gave a speech to the Halifax Chamber of Commerce on October 6 titled “What’s Happening to Inflation and Why It Matters”.
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He said the inflation rate is considered manageable between 2 and 3% – that’s where it was before the COVID-19 pandemic.
In the first six months of 2020, Canada had a few months without inflation, but then it started to soar. The inflation rate in July 2021 was 3.5%, in mid-2021 it was 4.5%.
Inflation peaked in Canada at 8.1% in June and has since declined.
Macklen said the nature of inflation has changed over the past year from global to national and from goods to services.
“We need to slow spending in the economy so that supply can catch up with demand,” he said.
GAS PRICE
It’s something that’s mostly out of Canada’s control, but it plays a huge role in inflation. For example, from September 2021 to September 2022, the price of energy for consumers in British Columbia increased by 40%.
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So the cost of running a car increases, while the cost of transportation (road, rail and air) also jumps and this trickles down to buyers of goods.
When the COVID-19 pandemic hit British Columbia in March 2020, the economy went into a short, sharp recession and suddenly a liter of gasoline cost 88 cents. As central banks cut the cost of money, people started spending a lot more, real estate soared and, of course, the price of gasoline did the same – peaking two years ago. weeks at $2.39 per liter in Vancouver.
Gas prices are falling, which could be an indicator of falling demand.
REAL ESTATE VALUE AND SALES
Each month, the Real Estate Board of Greater Vancouver releases a market report. The September report showed sales were down nearly half from the same time last year – and 36% below September’s 10-year average. The number of homes for sale has also decreased by almost 20% compared to the same period in 2021.
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Prices are also starting to drop. The average house price (all categories combined) has fallen by 8.5% over the past six months.
UBC property expert Tsur Somerville said monthly reports from the local real estate board are a good resource to see changes in volumes and prices, but they don’t reflect how long properties are on. the market. He added that the monthly market reports from the BC Real Estate Association are also very informative.
He said his concern about the reduction in gross domestic product in British Columbia would be if it was accompanied by weak job growth.
“The recession is undermining the real estate market,” Somerville said.
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