Monday Morning Mortgage Rate Update

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Monday Morning Mortgage Rate Update

By David Larock.

On Wednesday of last week, Statistics Canada released its latest  Consumer Price Index(CPI) data for August 2011. While overall CPI rose  3.1%, up from 2.7% in July, this was mainly due to higher food and energy costs,  and price increases in these two areas have not historically spurred  broader-based price inflation.

Core inflation, a more refined number that strips out volatile inputs like  food and energy, rose 1.9% –  also higher than the 1.6% increase we saw in July.  While some analysts made much of the fact that we are now approaching the Bank  of Canada’s (BoC’s) 2% target for core inflation, I think any talk of an  imminent rate increase is still very premature, based in part on BoC Governor  Mark Carney’s speech  last week in Saint John, New Brunswick. These were some of his key  comments:

  • “The U.S. economy has lost momentum”, “the U.S. recession was deeper and its  recovery has been shallower than previously reported”, and “[the U.S] is in the  midst of the weakest recovery since the Great Depression”.  Translation: The U.S.’s current economic slump is far from  over.
  • “The [U.S.] housing market remains a mess, the consumer is weak, and  government actions can be expected to reduce growth after materially boosting it  in recent years.” Translation: The U.S. government has to start  withdrawing some of the stimulus it provided in the early stages of the initial  downturn, and that’s going to slow things down even more.
  • “The considerable headwinds our economy has faced in recent years are  blowing harder.” Translation: Stronger headwinds mean that our  economy may slow even more over the short term.
  • “Slower global economic momentum will dampen domestic resource utilization  and inflationary pressures”, and “the risks to our economy remain largely  external and are skewed to the downside.” Translation: Deflation is a more immediate concern than inflation.

The bottom line: While the latest CPI number came in higher, it’s clear that the Bank of Canada is much more worried about our lack of economic growth than our  rate of inflation. If that’s true, the next move in short-term (variable) rates  will be down, not up.

David Larock is an independent mortgage planner and industry insider specializing in
helping clients purchase, refinance or renew their mortgages. David’s posts
appear weekly on his blog at