Jordan Dawes
April 19, 2024
Weekly Market Update
Statistics Canada reported that Canada’s inflation rate increased in March. The result was widely expected with commodity prices having risen in recent months, particularly the price of oil. While inflation has trended lower over the past year, March’s result shows the path to the Bank of Canada’s (BoC) 2% target might not be a smooth one, as the BoC has said.
- Canada’s inflation rate was 2.9% year-over-year in March. This is up from the 2.8% annual increase in February, but it matched economists’ expectations, based on a survey by Bloomberg. By comparison, Canada’s inflation rate was 4.3% in March 2023.
- Higher gasoline prices helped drive March’s increase. Gasoline prices rose by 4.5% year-over-year in March. Oil prices have tracked higher so far in 2024 amid geopolitical tensions and supply cuts from the Organization of the Petroleum Exporting Countries and allies.
- Housing costs continue to increase, contributing to Canada’s higher inflation rate. Mortgage rates have risen substantially as the BoC lifted interest rates, which have increased the interest payable on mortgages. Additionally, rental prices moved higher in March amid a relatively tight market.
- While headline inflation crept higher, core inflation ticked lower. The core measures tracked by the BoC, which exclude more volatile items such as food and energy, fell in March. Core inflationary pressures have been a concern for Canada’s central bank, but March’s drop might suggest the BoC is closing in on lowering interest rates.
March’s result reinforces expectations that the path to 2% inflation will not be smooth. The BoC’s battle against inflation is not yet over. And we have seen recently that elevated inflation, high borrowing costs and a cooling labour market have put pressure on many Canadian households. In response, market participants are currently expecting the BoC to begin lowering interest rates this summer.
As far as the global economy is concerned, the International Monetary Fund (IMF) has turned a bit more optimistic this year. In its most recent World Economic Outlook, the IMF raised its outlook for global economic growth. Despite so much uncertainty and tight financial conditions, the global economy has remained relatively resilient, thus far avoiding a recession as central banks tightened monetary policy at an aggressive pace.
- In April’s World Economic Outlook, the IMF revised its projection for global economic growth to 3.2% in 2024. This is up slightly from the 3.1% pace of growth projected in its January outlook. The economic organization is also expecting growth of 3.2% in 2025.
- Resilient economic growth and moderating inflation helped drive the higher growth forecast from the IMF. The IMF believes the global economy can achieve a soft landing, which could allow central banks to begin lowering interest rates. Global inflation is expected to fall to 5.9% this year from 6.8% in 2023.
- Global economic growth is likely to be driven by developed market economies, particularly the US. The IMF says the US economy might expand by 2.5% this year. US economic growth has been stronger than expected, benefiting from a robust consumer. The IMF also sees evidence of a strong recovery in Europe.
- There are several risks to the IMF’s global economic outlook. China remains a risk to growth, due in part to its weak property market, which is weighing heavily on economic conditions in the country. Additionally, geopolitical tensions persist, which could push commodity prices higher.
The IMF projects Canada’s economy could expand by 1.2% in 2024, which would be up from Canada’s 1.1% increase in 2023. Economic activity in Canada should benefit if the US economy remains resilient and the European economy recovers. While there are several indicators pointing to the potential for higher growth, there are still pockets of weakness, which could weigh on global economic growth projections.
Next week (Thursday, April 25th, at noon) we have our annual “What’s Happening this Year” where we’re joined virtually with the chair of our Investment Strategy Committee’s (ISC), Wincy Wong. Together, Wincy and Mike will discuss the stocky inflation, rate cuts on the horizon, and what the top economists at CIBC World Markets are expecting for the remainder of 2024.
If you would like to tune in, please email kelly.frias@cibc.com to RSVP and get a private link to the event (as it will not be recorded).
Source: CIBC Morning Market Brief