Canada’s annual inflation rate has ticked back up to the Bank of Canada’s (BoC) target of 2% as of October 2024, signalling potential cuts to interest rates in the coming months. Market expectations are high for a rate reduction in December, as the central bank aims to maintain price stability and stimulate economic growth.
Inflation Insights
In October 2024, Canada’s inflation indicators showcased a rebound:
Inflation Rate (YoY): Rose to 2% from 1.6%, aligning with the BoC’s target and slightly exceeding the 1.9% market consensus.
Core Inflation (YoY): Increased to 1.7% from 1.6%.
Inflation Rate (MoM): Showed a 0.4% rise, a sharp recovery from a -0.4% drop in the previous month.
The trimmed and median Consumer Price Index (CPI) metrics also climbed to 2.6% and 2.5%, respectively, reinforcing that inflationary pressures are broad-based.
Visual Summary of Inflation Metrics:
Falling Yields Amid Geopolitical Tensions
While inflation figures provide optimism for economic stability, global geopolitical tensions are pulling bond yields lower. This morning, both the U.S. 10-Year Treasury Yield (US10YR) and Canada 5-Year Bond Yield (CA5YR) dropped:
These declines reflect investor movement toward safe-haven assets due to escalating U.S.-Russia tensions.
Geopolitical Drivers of Market Volatility
Markets are reacting to a significant geopolitical development:
The U.S. has authorized Ukraine to use long-range missiles within Russian territory.
In response, Russia has lowered its threshold for deploying nuclear weapons.
This escalation has heightened fears of broader conflict, prompting investors to seek safety in U.S. Treasury bonds. As demand for these bonds rises, their prices increase, and yields decrease. Similar effects are seen in Canadian bond markets, as the CA5YR yield typically follows trends in the US10YR.
Outlook: What Does This Mean for Borrowers? ie my clients just like YOU
For Canadian borrowers, these developments could signal relief:
Interest Rate Cuts: With inflation on target, the BoC is more likely to ease monetary policy, potentially lowering borrowing costs.
Falling Bond Yields: Declines in yields on government bonds often translate into lower fixed mortgage rates.
However, market conditions remain volatile due to external factors like geopolitical tensions. Borrowers should monitor these dynamics closely, as they could impact both short-term and long-term borrowing costs.
Takeaway
Inflation returning to the 2% target marks a milestone for Canada’s economy, likely paving the way for interest rate cuts. At the same time, geopolitical uncertainties are driving shifts in bond markets. As a borrower, staying informed about these trends can help you make smarter financial decisions.
Sources:
For tailored advice on how these changes might impact your mortgage, visit www.emilycallme.com
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