Weekly Digest – 27th September 2024

Welcome to our Weekly Digest – stay in the know with some recent news updates relevant to business and the economy.

Despite positive economic news, experts warn that the tough times aren’t over yet.

After two years of steady interest rate hikes, inflation in Canada finally reached the Bank of Canada’s target of two per cent in August. This milestone comes after a challenging period of rising prices that affected Canadians across the country. The central bank’s efforts to bring inflation down have been closely watched by economists and policymakers alike.

One of the main factors that helped cool inflation was the gradual slowing of consumer demand. Higher borrowing costs made it more expensive for individuals and businesses to take out loans, which in turn reduced spending in the economy. This slowdown in demand helped ease the pressure on prices.

In addition, global factors such as lower energy prices and improvements in supply chains also played a role in bringing inflation down. The easing of these external pressures allowed Canada to see more stable prices in essential goods like food and fuel, which had been driving up inflation rates.

As inflation reaches the desired target, economists are now shifting their focus to interest rates. Many are calling for a reassessment of the current rates, suggesting that some cuts may be necessary to ensure the economy doesn’t slow down too much. However, any changes will depend on how inflation trends in the coming months.

A strong recovery in the housing market could slow down how quickly interest rates are reduced.

The Canadian economy is showing signs of a stronger-than-expected recovery, with a notable rebound in the housing market. This unexpected growth is drawing attention from economists and policymakers who are closely watching the Bank of Canada’s next steps regarding interest rates. The recovery has sparked new discussions on whether the central bank should reconsider its approach to cutting rates.

The housing market, in particular, has shown significant improvement, bouncing back faster than anticipated. This resurgence in housing activity has boosted overall economic performance, raising questions about how long the Bank of Canada will continue with its rate-cutting strategy. A strong housing market can fuel inflation, which may complicate the bank’s efforts to control prices.

As the economy strengthens, the Bank of Canada may find itself in a position where it needs to slow or even pause its rate cut cycle. The bank’s main goal has been to lower interest rates to stimulate growth, but with the economy already gaining momentum, further cuts might risk overheating the market, especially in sectors like real estate.

These new deliberations signal that the central bank could shift its focus from aggressive rate cuts to maintaining a balanced approach. Economists are now carefully analyzing the economic data to determine if a pause is needed to prevent inflation from rising again, as the recovery unfolds.

Canada is working to bring inflation under control.

Former Bank of Canada Governor Stephen Poloz has expressed confidence in the current efforts to bring inflation under control in Canada. According to Poloz, the steps being taken by the Bank of Canada are working as intended, providing some reassurance to those concerned about rising prices. His remarks highlight the progress being made after a long period of economic uncertainty.

Poloz pointed to the various measures implemented by the central bank, such as raising interest rates, which have been instrumental in cooling down inflation. These actions have aimed to slow down spending and borrowing, creating a more balanced economy. He believes that the results are beginning to show, with inflation gradually moving toward the desired target.

Despite the positive outlook, Poloz acknowledged that managing inflation is a slow process. It requires patience, as changes in monetary policy take time to have a full impact on the economy. Poloz emphasized the importance of staying the course, ensuring that inflation continues to decline in a steady and controlled manner.

His remarks come as a reminder that while progress has been made, inflation control is an ongoing challenge. Poloz’s confidence in the central bank’s approach suggests that Canada is on the right path, but that it will take time to fully address inflation and stabilize the economy.

Canada retail sales rise more than expected in July; likely up in August

Canadian retail sales increased by 0.9% in July compared to June, driven largely by strong performance in motor vehicle and parts sales. This growth signals a positive trend in consumer spending, with vehicles playing a key role in boosting overall sales figures for the month. The increase reflects growing consumer demand in certain sectors, particularly for big-ticket items like cars.

Motor vehicle and parts dealers saw the largest boost, indicating a rebound in the automotive market. The recovery in this sector has been crucial in lifting overall retail sales, as consumers feel more confident about making larger purchases. This uptick also suggests improving supply chain conditions, which had previously slowed vehicle sales.

The data, released by Statistics Canada, provides optimism for continued growth in the retail sector. Preliminary estimates suggest that retail sales likely continued to climb in August. Economists are closely watching these numbers to gauge the strength of consumer spending in the face of higher interest rates and inflation.

The retail sector’s performance is seen as a key indicator of economic health, and the consecutive months of growth signal resilience in the Canadian economy. As sales improve, businesses across different sectors could benefit, helping to maintain economic momentum as the year progresses.

Gas prices in Canada have ended six weeks of falling.

Gas prices in Canada have ended a six-week streak of declines, marking a shift in the recent trend of falling fuel costs. Between September 12 and September 19, the average price for regular gasoline rose by 0.7 cents per litre. This slight increase comes after weeks of consistent reductions, which had provided some relief to Canadian drivers.

According to data from Kalibrate, this rise in fuel prices may be a sign that the period of steady declines is over. While the increase is relatively small, it raises concerns that gas prices could begin to climb again in the coming weeks. The change comes as global oil markets remain volatile, influencing fuel costs across the country.

The nationwide average for regular fuel had been on a steady decline for six consecutive weeks, giving consumers a break from high prices at the pump. However, this latest data suggests that the factors driving lower prices may be shifting. Supply chain disruptions, refinery issues, or changes in oil production could be contributing to this recent uptick.

With gas prices showing signs of reversing course, Canadian consumers and businesses alike may face renewed pressure from rising transportation costs. Economists will be keeping a close eye on fuel prices, as higher costs at the pump could impact broader economic activity, especially in sectors reliant on transportation and logistics.

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