Canada’s inflation eases to 3.8%, and that matters for anyone who plans to buy or sell a home. The annual inflation rate recently saw a notable dip, sliding from 4.0% to 3.8% in September. These numbers are significant because the Bank of Canada (BOC) has an interest rate announcement coming up.
This post was first published in the fall of 2023. The figures below are from the September inflation report of that year.
This decline could hold key implications for Canada’s housing market and for the central bank’s next decisions. Below, I explain what drove the change and how it could affect buyers, sellers and homeowners in Mississauga and across the GTA.
Why inflation eases: the main drivers
Several factors explain this decline in the inflation rate. Notably, prices for durable goods and groceries grew more slowly last month. However, it is important to recognize that despite this drop, the rate remains well above the BOC’s target of two percent. So even as inflation eases, the work is not over.
Gasoline actually worked against this slowdown, because gas prices rose faster in September than in August. Excluding gasoline costs, the Consumer Price Index still rose by 3.7%. Furthermore, airfare prices dropped, possibly because airlines have offered more flights over the past year.
Additionally, prices for new cars have grown more slowly, mainly because there are more cars for sale.
Grocery and household prices as inflation eases
Grocery prices remain high. Still, their rate of growth slowed to 5.8% in September, down from the 6.9% increase seen in August.
Prices also slowed in several other categories. These include household costs, furniture and equipment, clothes and shoes, health and personal care, and recreation. For families, this is welcome news, although it does not mean prices are falling. Instead, it means they are rising more slowly. In short, inflation eases, but your grocery bill may still feel heavy.
What the BOC may do now that inflation eases
The easing of inflation matters a great deal for the BOC’s upcoming interest rate decision. Governor Tiff Macklem had previously hinted at the possibility of a rate hike. However, slower price growth and a slower economy may change the bank’s plans.
Some experts have suggested that further rate hikes may not be necessary. They point to the downward trend in inflation that comes from a weakening economy. You can follow the bank’s decisions directly on the Bank of Canada website, and the monthly price data on the Statistics Canada website. To learn how the schedule works, see my post on when the Bank of Canada makes rate announcements.
How the housing market reacts when inflation eases
The BOC looks at many economic indicators when it sets monetary policy, and the housing market is one of them. If softer inflation and a weaker economy keep pushing prices down, the central bank may choose to hold or even reduce interest rates. That decision could have a big impact on the housing market, particularly on borrowing costs for buyers. Here are the likely effects if inflation eases further and rates follow.
- Lower borrowing costs: Lower rates make it cheaper for buyers to borrow. As a result, more people may find a mortgage within reach.
- Home prices: Lower rates tend to push prices up, because more buyers can afford to get into the market.
- Mortgage deals: When more people want mortgages, lenders often compete harder on products and rates.
- A lift for the economy: Lower rates can give the whole economy a boost. In turn, that can help the housing market too.
Balancing growth and household debt
However, the central bank must strike a careful balance. It wants to help the economy grow. At the same time, it worries about rising home prices and high household debt. So it will explain any rate change with care, to keep the market calm. So even when inflation eases, rate cuts are never automatic.
What buyers and sellers in Mississauga should do
In summary, the recent slowdown in inflation and the wider economic picture may push the BOC to rethink its stance on interest rates. In turn, this can have direct and indirect effects on the housing market.
Anyone who is in the market, or plans to enter it, should stay tuned to the BOC’s actions and messages. For buyers, that means getting a mortgage pre-approval and knowing your numbers early. For sellers, it means watching how buyer demand responds as inflation eases. Also, if you want more background, read my related post on how the BOC held off its rate increase after this report.
Talk to a Mississauga real estate agent
Do you have questions about what this means for you? I am happy to help. I can help you find a solution that suits your unique needs and goals. Please send me a message or call me on my direct line at 416 908 5600. A. Q. Mufti, Sales Representative, RE/MAX Real Estate Centre Inc., Brokerage.
