Geoff Cowling

Canadian inflation, as measured by the Consumer Price Index (CPI), rose to a ten-year high of 3.4% year-over-year in April, up from 2.2% in March.  Much of the increase in inflation was the result of base-year effects as prices posted a steep decline during April of last year during the first few months of the pandemic-induced shutdown.  For example, gasoline prices were 62.5% higher in April 2021 than in April 2020.  On a seasonally adjusted month-over-month basis, the CPI was up 0.6% in April. In BC, consumer prices were up 0.2% month-over-month and up 3% compared to April 2020. While inflation is currently running higher than the Bank of Canada's 2 per cent target, much of the increase looks to be temporary and should fade as base-year effects become less significant in coming months.  Measures of core inflation, which strip out more volatile prices, are also up slightly. The Bank of Canada's three preferred measures of core inflation were trending at  2.1% or 0.2 points above inflation in March.  How inflation evolves over the next 3 to 6 months will be very important for the  stance of monetary policy over the next year.  If higher inflation is not just a temporary phenomenon but is being driven by an over-stimulated economy, than we could see the Bank of Canada act on interest rates prior to 2023.  However, if the uptick in inflation starts to fade in coming months, we expect the Bank will stay its current course.

Vancouver, BC – May 12, 2021. The British Columbia Real Estate Association (BCREA) reports that a total of 13,683 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in April 2021, an increase of 312.3 per cent over April 2020 when the onset of the COVID-19 pandemic prompted a lockdown of the provincial economy. The average MLS® residential price in BC was $946,606, a 29.1 per cent increase from $733,330 recorded in April 2020. Total sales dollar volume was $12.9 billion, a 432.2 per cent increase from last year.

“Although provincial home sales were down slightly from an all-time high in March, sales activity was the highest on record for April,” said BCREA Chief Economist Brendon Ogmundson. “Home sales continue on a record pace, though we do see a calming environment compared to the frenzied activity of recent months.”

Total active residential listings were down 14.5 per cent year-over-year in April but did tick higher on a seasonally adjusted basis for the second consecutive month as new listings activity ramped up.

"We are starting to see very strong new listings activity in several markets,” said Ogmundson, “however, it will take quite some time for total listings to return to the level needed to balance out markets and temper growth in home prices.”

Canadian employment fell by 207,000 jobs in April (-1.1%, m/m), following a 303,000 gain in March. The level of Canadian employment is now 2.7% (-503k) below its February 2020 pre-pandemic level. The decline in April reflects the implementation of public health measures in Ontario, British Columbia and Quebec.  The national unemployment rate increased percentage 0.6 points to 8.1%.

In BC, employment fell by 43,100 (-1.6%, m/m) in April following a gain of 35k in January.  The provincial unemployment rate rose 0.2 points to 7.1%. The overwhelming majority of those job losses were in part-time work as restaurants closed for in-person dining and other "circuit breaker" restrictions took hold in the province. The decline in April was the first month of job losses since April 2020. Most of the job losses were in Vancouver where employment fell by 26,000 (-1.7%,m/m) in April.

Canadian real GDP grew by 0.4% in February, following a 0.7% increase in the previous month. This is the 10th consecutive monthly gain since the steepest drops in Canadian history was observed in March and April. This brings GDP 2% below the February pre-pandemic level of output.  For estimates of economic growth in BC, follow BCREA's monthly Nowcast of provincial GDP growth here: https://www.bcrea.bc.ca/economics/bcrea-nowcast/

Leading the increase the retail sector which jumped 4.5% after consecutive monthly declines prompted by provincial lockdown measures. Residential construction rose 4.7% while the GDP of offices of real estate agents and brokers  was up 2.8%.

Early estimates from Statistics Canada indicate that real GDP grew by 0.9% in March. That puts first quarter Canadian GDP on track to grow about 6.5% on an quarterly annualized basis.  

Canadian retail sales rose 4.8% m/m on a seasonally-adjusted basis in February. Sales were higher in 9 of 11 sub-sectors, led by higher sales at motor-vehicle and parts dealers as well as gas stations.  Excluding motor-vehicles and gasoline, retail sales were up 3.8% in February.  Statistics Canada also released a preliminary estimate for March showing retail sales increased 2.3%. In BC, seasonally-adjusted retail sales were down 0.1% m/m but were up 1.8% m/m in Vancouver. On a non-seasonally adjusted basis,  BC retail sales were up by 12% compared to the same time last year.    In February Canadian e-commerce sales rose 92% year-over-year to $3.1 billion, accounting for 6.8% of total retail sales. The share of e-commerce was down 1.3 percentage points  as more brick-and-mortar stores were open to in-person shopping.

Canadian retail sales fell in January by 1.1% m/m on a seasonally-adjusted basis. This is the second consecutive monthly decline since April 2020. Sales were down in 6 of 11 subsectors, representing 39% of retail sales. Clothing and clothing accessories stores led the decline, down for a fourth consecutive month. Notable declines were also reported at furniture and home furnishing stores. Compared to the same time last year, retail sales were up by 1.3%.   Sales were down mainly in Quebec and Ontario, where stricter lockdown measures were in place. In BC, seasonally-adjusted retail sales rose by 4.4% m/m ($8.4 billion) and by 4.4% m/m ($3.7 billion) in Vancouver. On a non-seasonally adjusted basis, contributing to the increase were sales at auto dealers and gasoline stations. BC retail sales were up by 14.5% compared to the same time last year.    In January, Canadian e-commerce sales totaled $3.5 billion, accounting for 7.8% of total retail sales, down from 8.1% in the previous month. E-commerce sales were up by 111% from a year ago. This excludes Canadians purchasing from foreign e-commerce retailers.        With the resurgence of COVID-19 cases in Canada, provincial governments began to reintroduce lockdown measures, which directly affected the retail sector. Approximately 14% of retailers were closed at some point in January for an average of three business days. Statistics Canada's preliminary estimate for February suggests that retail sales increased by 4%. Growth in retail sales is expected to bounce back as the vaccine rollout accelerates and pent-up consumption is unleashed.

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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%. 

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 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 restrictions 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.

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 also 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.

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 quarterly 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, 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.

Vancouver, BC – February 11, 2021. The British Columbia Real Estate Association (BCREA) reports that a total of 7,169 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in January 2021, an increase of 63.3 per cent over January 2020 and over a thousand sales higher than the previous record for the month of January. The average MLS® residential price in BC was $845,169, a 16.1 per cent increase from $728,269 recorded in January 2020. Total sales dollar volume was $6.1 billion, an 89.6 per cent increase from last year. “It was once again a record-setting month for the provincial housing market,” said BCREA Chief Economist Brendon Ogmundson. “While sales were strong across all regions of the province, the Fraser Valley, Interior and Vancouver Island regions shattered previous sales records and pushed January sales to new heights.” Total active residential listings were down 21.5 per cent to 20,254 units in January, the lowest level of provincial active listings on record, going back to 2000. With strong sales and so few listings, market conditions are exceptionally tight with less than three months of total supply.  “The supply of listings continues to be held back by the pandemic,” added Ogmundson. “With so few listings, markets are starved for supply and prices are under extraordinary pressure.”

BCREA 2021 First Quarter Housing Forecast Update

Vancouver, BC – January 25, 2021. The British Columbia Real Estate Association (BCREA) released its 2021 First Quarter Housing Forecast Update today.

Multiple Listing Service^® (MLS^®) residential sales in the province are forecast to rise 15.6 per cent to 108,680 units this year, after recording 94,021 sales in 2020. In 2022, MLS^® residential sales are forecast to pull back 9 per cent to 98,850 units.  

“After an unprecedented and often surprising performance in 2020, the provincial housing market is set up for a very strong year in 2021,” said Brendon Ogmundson, BCREA Chief Economist. “A strong economic recovery and record-low mortgage rates will continue to drive strong demand this year.” 

On the supply side, new listings activity recovered through the second half of 2020, but not nearly enough to see any accumulation in overall inventory. As a result, market conditions will start 2021 very tight, with the potential for strong price increases through the spring and summer until new supply comes online. We are forecasting a 7.7 per cent rise in the MLS^® average price this year, followed by a further 3 per cent in 2022.

Canadian retail sales rose for the seventh consecutive month in November by 1.3% on a seasonally-adjusted basis, defying Statistic Canada's preliminary estimate of no change. Sales were up in 7 of 11 subsectors, representing 53% of retail sales. The increase was led by higher sales at food and beverage stores. Compared to the same time last year, retail sales were up by 7.5%.    

Sales were up in all provinces except for Manitoba. In BC, seasonally-adjusted retail sales were up by 0.8% ($8.0 billion) and by 1.4% ($3.7 billion) in Vancouver. Contributing the most to the increase were sales at electronic and appliance stores, while sales were down at auto dealers and gas stations. Compared to the same time last year, BC retail sales were up by 11.1%.   

In November, Canadian e-commerce sales totaled $4.3 billion, accounting for 7.4% of total retails sales, which is up from 5.4% in the previous month. Meanwhile, e-commerce sales were up by 76% from a year ago. This excludes Canadians purchasing from foreign e-commerce retailers.  
    
November was a pleasant surprise in retail sales, as consumers likely pulled forward their purchases in anticipation of the holiday rush, as well as promotional events such as Black Friday. Early estimates from Statistics Canada are showing a December decline, as COVID-19 cases increase and multiple provinces implement stricter lockdown measures. Growth in retail sales is expected to slow until the vaccine becomes more widely available.

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 also 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 the economic recovery has been interrupted by the second wave of COVID-19, but the arrival of effective vaccines has boosted the medium-term outlook for economic growth.  The Bank expects the Canadian economy will grow 4 per cent in 2021 and 5 per cent in 2022.

The restrictions in place to mitigate the impact of the second wave of COVID-19 mean that the economy is likely going to get off to a slow start in 2021.  However, as vaccinations accelerate in coming months, the Canadian economic recovery will gain steam in the second half of 2021. Depending on the strength of the recovery, we may see the Bank taper its purchases of government bonds in 2022, which could put moderate upward pressure on 5-year fixed mortgage rates. However, that still means the current extremely low interest rate environment will be around for quite some time.

Canadian employment lost 63k jobs in December (-0.3%, m/m), representing the first decline since April 2020. This comes on the heels of many provinces reinstating public health measures that closed recreational facilities and in-person dining services. The decline was led by part-time employment, specifically among youth aged 15 to 24 and those 55 and above. Employment declined in all provinces except for BC. The national unemployment rate ticked up by 0.1 percentage points to 8.6%, which is still a fall from the record high of 13.7% in May 2020. Compared to the same month last year, Canadian employment was down by 3.0% (-572k).

In BC, employment grew by 3.8k (0.2%, m/m) in December, following a gain of 24k in the previous month. The province continues to be at 99% of its pre-COVID February employment level. The unemployment rate ticked up by 0.1 percentage points to 7.2%, the first increase since the record high of 13.4% in May 2020. Meanwhile, in Vancouver, employment decreased by 1.1k (-0.1%, m/m). Compared to one year ago, employment in BC was down by 1.4% (-37K) jobs.

Despite rising cases of COVID-19 across the country, employment in BC bucked the trend and grew in December. Industries that saw the largest increases were construction and manufacturing, while like the rest of the country, employment fell in accommodation and food services. On the whole, we can expect national employment growth to come to a standstill as caseloads and hospitalizations increase, leaving many provinces to extend restrictions and partial lockdowns. 

Canadian real GDP grew by 0.4% in October, following a 0.8% increase in September. This is the weakest rate of growth since May but marks the sixth consecutive monthly increase in GDP since the steepest drop in Canadian history was observed earlier this year. Sixteen of the twenty industries reported an increase in output. Leading the increase was professional services (1.0%), while accommodation and food services reported a steep decline (-3.9%) as patios closed up and heightened restrictions were implemented.

Early estimates from Statistics Canada indicate that real GDP grew by 0.4% in November. We continue to anticipate growth, albeit at a slower rate as the economy has once again been hampered by rising COVID-19 cases and lockdowns in many provinces. The soft handoff to the new year will mean that the first quarter of 2021 will struggle to report any growth.  

Retail sales rose for the sixth consecutive month in October by 0.4% on a seasonally-adjusted basis, which is higher than Statistic Canada's preliminary estimate of no change. Sales were up in 6 of 11 subsectors, representing 50.9% of retail sales. The increase was led by higher sales at auto and parts dealers. Compared to the same time last year, retail sales were up by 7.5%.    

Sales were up in seven provinces in October. In BC, seasonally-adjusted retail sales were up by 2.1% ($8.0 billion) and by 2.8% ($3.7 billion) in Vancouver. Contributing the most to the increase were sales at health and personal care stores. Compared to the same time last year, BC retail sales were up by 11.5%.   

In October, e-commerce sales totaled $3.1 billion, accounting for 5.2% of total retails sales, which is down from 5.6% in the previous month. Meanwhile, e-commerce sales were up by 68% from a year ago. This excludes Canadians purchasing from foreign e-commerce retailers.  
    
Despite the rising cases of COVID-19 and stricter lockdown measures in many provinces, positive retail sales are expected going into the holiday season, especially in e-commerce.

Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 1.0% in November year-over-year. This is the largest increase since the pandemic started in March. Excluding gasoline, the CPI rose by 1.4%. Prices rose in six of eight components year-over-year in November, with the recreation, education, and reading index contributing the most to the increase. Growth in the Bank of Canada's three measures of trend inflation remains unchanged from the previous month, averaging 1.7%. 

Regionally, the CPI was positive in eight provinces. In BC, CPI rose by 1.1% in November year-over-year, up from October's increase of 0.5%. Strong price growth continued for health and personal care (3.3%) and shelter (2.4%). In contrast, gas prices continue to be a drag on BC's inflation (-12.3%). 

Costs for shelter continue to increase, as rental rates rise and record-low interest rates put downward pressure on mortgage costs, making single-family homes more attractive to households demanding more space. As containment measures expand in many provinces, consumers are spending more on furniture and household appliances, which remain above pre-pandemic levels. Canadian inflation is expected to remain subdued in the near future. In this environment, the Bank of Canada will continue to keep interest rates low.