Canadian Inflation, Economy, and Real Estate Update

Oct 16, 2024

Canadian Inflation and Economic Update

Inflation Overview

  • Annual Inflation Rate:
    • Dropped to 1.6% in September from 2% in August.
    • Lowest since February 2021 and below market forecast of 1.9%.
  • Impact on Economy:
    • Inflation below Bank of Canada's target of 2% for two straight months.
    • Discussion on potential impacts on Canadian economy.

Sector-Specific Details

  • Gasoline Prices:
    • Led decline with a 10.7% drop from 5.1% in August.
    • Tied to falling crude prices.
    • Broader transportation sector fell by 1.5%.
  • Shelter Costs:
    • Rent prices slowed to 8.2% from 8.9%.
    • Overall shelter category inflation dropped from 5.3% to 5%.
  • Food Prices:
    • Slight increase to 2.8% from 2.7%.
    • Restaurant prices up 3.5%, grocery prices steady at 2.4%.

Inflation Drivers

  • Cheaper Energy:
    • Falling oil prices affecting gasoline and transportation.
  • Shelter Costs:
    • Rent prices high but not rising as fast.
  • Food Prices:
    • High food prices possibly due to supply chain issues and higher labor costs.

Bank of Canada and Monetary Policy

  • Interest Rates:
    • Potential extension of rate-cutting cycle by Bank of Canada.
    • Discussion on effects of rate cuts on economy, housing market.
    • Balance needed to avoid reigniting inflation.

Conclusion

  • Mixed Impact of Inflation Decline:
    • Benefits not evenly distributed across different sectors.
    • Gas prices down, but rents and food prices remain high.
  • Future Considerations:
    • Potential for inflation stability if oil prices remain low and rent stabilizes.
    • Risks from global energy market volatility and Middle East events.

TD Bank Update

Recent Developments

  • Felony Charges:
    • Pleaded guilty to anti-money laundering failures.
    • Resulted in a $3.09 billion fine and cap on U.S. retail assets.
  • Impact on Growth:
    • U.S. retail assets capped at $434 billion.
    • Cannot grow by adding new products or branches in the U.S.

Strategic Shifts

  • Focus on Canadian Markets:
    • Shift towards corporate banking through TD Securities.
  • Leadership Transition:
    • CEO Bharat Masrani retiring in April 2025.
    • New CEO Raymond Shun to face challenges of restoring trust.

Internal Challenges

  • Morale and Leadership:
    • Frustration over leadership focus on compliance.
    • Concerns about retaining talent during restructuring.

Future Outlook

  • Asset Cap Duration:
    • Expected to last 5+ years, similar to Wells Fargo 2018 restrictions.
  • Recovery and Trust Restoration:
    • Long road ahead to balance market challenges and restore trust.

Canadian Real Estate Market

Housing Market Status

  • Current Forecast by CREA:
    • 468,900 properties expected to sell in 2024 (5.2% increase from 2023).
    • Average home price in September: $669,630, a 2.1% year-over-year increase.

Market Trends

  • Expected Growth:
    • Prices expected to rise by 0.9% in 2024, lower than originally predicted.
  • Sales Activity:
    • September sales up 6.9% year-over-year, but monthly growth sluggish at 1.9%.

Factors Affecting the Market

  • Buyer Hesitation:
    • Waiting for more rate cuts and price stability.
  • Inventory Levels:
    • Increase in listings but still below historical average.

Future Expectations

  • Market Recovery:
    • Expected pickup in spring 2025.
    • Uncertainty if rate cuts come sooner and impact on mortgage deals.