Inflation increased slightly to 4.4% in April the first increase since June 2022. The increase is mainly the result of a reduced drag from gasoline prices and continue strong contribution from shelter costs, especially mortgage interest payments and rent. Nevertheless, there are continued signs of modest moderation in underlying inflationary pressures, with most measures of core inflation easing in April yet remaining elevated, above 4%.
Rebounding activity and low inventories led to house prices gains in April
National house prices increased again April. Since the start of the correction, prices nationally have fallen by 14.0%. The correction has been more significant in some markets, especially those with the most significant post-pandemic gains. However, the continued decline in inventories, while demand is improving, is beginning to impact the housing market.
Where’s the boom? And the rise and fall of the Alberta Advantage
Despite record levels of oil revenue since mid-2021, the Alberta economy is not seeing an associated boom, as a smaller share of revenues is staying in the province. Instead, a greater share of revenues is being returned to shareholders, most of whom are foreigners, and a smaller share is reinvested into operations in the province.
Insolvencies surged in March to their highest since the start of the pandemic
Insolvencies rose sharply in March on a seasonally-adjusted basis. This follows a moderation in February and a period of weakness in insolvencies since the end of the summer despite continued strains on households’ finances due to a sharp rise in interest rates and continued deterioration in households’ purchasing power over the period.
The labour market remains resilient, but Alberta underperforms
Today’s Labour Force Survey data continues to point to a labour market in Canada that remains robust and resilient. The low unemployment rate continues to signal that the labour market remains very tight, something the Bank of Canada is closely monitoring.
Growth is losing momentum
Today’s release of the monthly GDP suggests that the Canadian economy is losing momentum after a strong start to 2023. As such, the monthly GDP is pointing to growth in the first quarter of 2023 at around 2.2% q-o-q ar. However, with the preliminary estimate suggesting a small contraction in March and the negative impact of the federal worker strike on economic activity in April, it is very likely that growth may be flat in the second quarter.
The Alberta Advantage is melting away
Canadian households have faced a sharp rise in the cost-of-living in recent years, as inflation reached levels not seen since the 1980s. Looking at the provincial data, we find that Albertans have seen the most significant underperformance in their purchasing power since 2019 of all Canadian provinces.
Inflation continues to moderate
Inflation moderated to 4.3% in March and reached its lowest level since August 2021. The moderation is mainly the result of base effects in energy cost and durable goods prices.
The Bank of Canada keeps rates unchanged and ready to hike again, if needed
The Bank of Canada kept its policy rate unchanged at 4.50%, in line with our expectations. The central bank will also continue quantitative tightening (QT). Over the past year, the BoC has increased its policy rate by 425bp, the fastest pace since the mid-1990s.
The labour market remains robust and tight
Today’s Labour Force Survey data suggest the labour market in Canada remains robust and resilient. The low unemployment rate continues to signal that the labour market remains very tight, something the Bank of Canada is closely monitoring. Moreover, the report also shows that wage growth remains above 5% and higher than inflation, with average wages increasing by 5.2% y-o-y.