The Bank of Canada has not achieved its inflation target but that’s set to change with housing and mortgages playing their part in the rise.
CIBC Capital Markets economist Avery Shenfeld says that the consumer price index is set to be above 2% by next spring as several components gain by small amounts, although the interest rate rise this week will be a temporary drag.
He added that regional housing markets have yet to impact the CPI as
mortgage rates have offset higher prices and the data also includes builders’ costs which generally lag behind secondary markets.
"Statistics Canada has advised us that a change in methodology for housing inflation is forthcoming, and we're guessing that a measure for house prices could be part of that change. But the key to why house prices have been MIA is that mortgages have been generally rolling over at lower rates in the last several years. That's about to change," he says.
Mortgage rate interest CPI is currently around zero but Mr Shenfeld says that it will be well over 3% by mid-2019.
"That looks dramatic but given the modest weight of this one component, it would add only 0.2% to total CPI. In sum, a giant leap for MIC, but a small step for total inflation," he says.
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