The Bank of Canada increased its policy rate by 25bp, in line with our expectations, to 4.50%, its highest level since November 2007. The central bank also announced that it would continue quantitative tightening (QT). So far this year, the BoC has increased its policy rate by 400bp, the fastest pace since the mid-1990s.

Retail sales declined in November but the preliminary estimate suggests some reversal in December. So far this year, it is clear that retail sales have mainly increased because of inflation.

Inflation moderated in December but is still at the elevated level of 6.8%, in line with our expectations. Most moderation was the result to lower transportation costs due to the biggest decline in gasoline prices since April 2020. Nevertheless, there are some signs of modest moderation in underlying inflationary pressures, with most measures of core inflation easing slightly in December yet remaining elevated.

National house prices declined for a tenth consecutive month. Since the start of the correction, prices nationally have fallen by 13.2%. However, the correction has been more significant in some markets, especially those with the most significant post-pandemic gains. Rising interest rates since the start of 2022 have had a cooling impact on the housing market, especially with most rate hikes expected before the end of the year.

Insolvencies rose in November, after two consecutive monthly declines, on a seasonally-adjusted basis. This suggests that insolvencies could be restarting their rising trend seen since the spring of 2022.

Today’s Labour Force Survey data suggest the labour market in Canada remains strong. The low unemployment rate continues to signal that the labour market remains very tight, something the Bank of Canada is closely monitoring.

Inflation moderated in November at the elevated level of 6.8%. However, the headline number covers some divergences in the components, with a moderation in transportation costs, due to lower gasoline prices offsetting an acceleration in food and shelter costs and some other components.

National house prices declined for a ninth consecutive month. Since the start of the correction, prices nationally have fallen by 11.5%. However, the correction has been bigger in some markets, especially those with the most significant post-pandemic gains. Rising interest rates since the start of the year have had a cooling impact on the housing market, especially with most rate hikes expected before the end of the year.

Household indebtedness has been a significant concern and risk for the Canadian economy for some years. After a sizeable improvement during the pandemic, households’ debt-to-disposable income ratio is close to its highest levels on record at 183.3%.

Insolvencies eased in October, the second consecutive monthly decline and are at their lowest level since April, on a seasonally-adjusted basis. This situation is perplexing, considering the sharp rise in interest rates and the continued erosion in households’ purchasing power over the period. However, it could be the result of the continued strength in the labour market and households using their savings to stay afloat.