Canadian Consumer Price Inflation

Canadian consumer prices rose 1.5 per cent in the twelve months to March, a 0.4 point increase from February's inflation reading of 1.1 per cent. The increase was largely the result of a rise in energy prices of 4.6 per cent.  The Bank of Canada's index of core inflation, which strips out the most volatile components of the CPI, such as food and energy prices, increased 1.3 per cent in March. Inflation remains relatively non-existent in British Columbia. Consumer prices in BC increased 0.5 per cent from February and were just 0.1 per cent higher year-over-year in March.

As noted in yesterday's interest rate decision, the Bank of Canada expects energy prices to push total CPI inflation higher throughout 2014, while core inflation is forecast to remain relatively muted.

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Bank of Canada Interest Rate Announcement

The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 1 per cent. The Bank's target rate has now remain unchanged for 29 consecutive meetings. In its accompanying statement, the Bank noted that inflation in Canada remains low and is expected to remain below the Bank's 2 per cent inflation target this year due to slack in the economy and heightened retail competition. The Bank left is forecast for Canadian economic growth unchanged at 2.5 per cent this year and next, citing a strengthening global economy and ramped up business investment. The Bank also noted that recent developments are in line with the its expectations of a soft landing in the housing market, though elevated household debt remains a risk should economic conditions deteriorate. 

While some expected a slightly more dovish note from the Bank given continued muted inflation and a slight rise in the dollar, the Bank remains decidedly neutral. An expected second half rebound in growth and firming inflation means that the next move for interest rates is likely higher, but the timing of that move remains uncertain. Our view remains that the overnight rate will stay at its current level until at least early 2015. 

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Canadian Manufacturing Sales

Canadian manufacturing sales increased for the second consecutive month in February, rising 1.4 per cent.  At $51.2 billion, February's manufacturing sales were the highest since July of 2008. 

In BC, manufacturing sales fell 3 per cent on a monthly basis, but were 3.4 per cent higher than February 2013.  The durable goods sector, which includes wood products, mineral products and machinery and equipment manufacturing, posted a 4.4 per cent monthly decrease. Non-durable goods like paper, clothing, and food manufacturing, declined 1.5 per cent.  The manufacturing sector employs approximately 170 thousand people in British Columbia, or roughly 7.5 per cent of the BC workforce.  Therefore, growth in manufacturing output should help spur job growth which would support the BC housing market, particularly in regions with a high concentration of manufacturing activity.

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Low Mortgage Rates Key Driver in Spring Housing Market

The British Columbia Real Estate Association (BCREA) reports that a total of 6,661 residential sales were recorded by the Multiple Listing Service® (MLS®) in March, up 16.8 per cent from March 2013. Total sales dollar volume was $3.7 billion, an increase of 21.5 per cent compared to a year ago. The average MLS® residential price in the province rose to $562,316, up 4 per cent from the same period last year.

"While home sales are up from a year ago, consumer demand in the province has largely been treading water over the first quarter,” said Cameron Muir, BCREA Chief Economist. “However, fewer homes for sale means that most BC markets are moving into balanced conditions, which signals no particular advantage to either home buyers or sellers."

"Low mortgage interest rates are a key driver in the market, this spring,” added Muir. “It’s unlikely that mortgage rates will be at their current low level a year from now."

During the first quarter, BC residential sales dollar volume was up 32.4 per cent to $9.5 billion, compared to the same period last year. Residential unit sales were up 21.1 per cent to 16,435 units, while the average MLS® residential price was up 9.3 per cent at $579,775.

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Dominion Lending Best Rates

Canadian Housing Starts

Canadian housing starts tumbled close to 18 per cent in March to 156,823 units at a seasonally adjusted annual rate (SAAR).  The trend in Canadian new home construction moved lower as well, to 184,476 units SAAR. That level of construction is in-line with demographic demand. The majority of the decline in housing starts occurred in Ontario and Quebec.

New home construction in BC urban centers rose 20 cent in March to 26,276 units SAAR. On a year-over-year basis, housing starts were up 6 per cent compared to March 2013. Single-family starts rose 35 per cent while multiple units were down 1 per cent.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 2 per cent year-over-year in March, led by a 30 per cent increase in single-family units. In the Victoria CMA, total starts fell 4 per cent over March 2013. It was another solid month for new home construction in the Kelowna CMA, where starts more than doubled year-over-year on robust gains in both single and multiple unit starts.  Housing starts in the Abbotsford-Mission CMA were sharply lower on a year-over-year basis for the second consecutive month.

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Canadian and US Employment

Total employment in the Canadian economy increased by 43,000 jobs in March, and has grown by 190,000 jobs over the past 12 months.  The Canadian unemployment rate ticked 0.1 points lower to 6.9 per cent.

The BC labour market gained an impressive 18,300 jobs in March, the highest monthly job gains in over two years. The majority of the gains were in full-time employment. The provincial unemployment rate fell 0.6 points to 5.8 per cent, the lowest monthly unemployment rate since December 2008.

In the United States, payrolls grew by 192,000 jobs, February and January employment was revised higher by a combined 37,000 jobs. The US unemployment rate was unchanged at 6.7 per cent.  Over the past three months, job growth has averaged 178,000 in the United States.

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