EclectEcon

The different regions of Canada are experiencing different rates of inflation along the lines one might reasonably expect. The provinces that produce lots of energy and food (especially the prairies) have had higher rates of inflation, while those emphasizing manufacturing and lumber products (notably Ontario, but also Quebec) have been experiencing lower rates of inflation. The RGE Monitor wonders if the disinflation in Canada has reached a turning point.

More on inflation from the RGE Monitor:

* Core CPI growth rose to 1.5% y/y in April, from 1.3% in March (1.5% in Feb) below the BoC's 2% target but the first rise in 10 months. Total inflation rose to 1.7% y/y from 1.5%. Gasoline prices the main contributor to acceleration of total inflation, followed by mortgage interest cost
* TD: March could have marked the bottom for Canadian inflation in the current cycle as Canadian dollar's downward pressure on retail prices cannot be counted on. Food inflation tripled in April to 1.2% and seems to be catching up to international trends. BoC might ‘ease the easing’ and cut only 25bps points rather than 50bps at its June meeting.
* BMO: domestic bakery and cereal prices up 9.9% y/y, the largest gain since 1981. the dampening impact of the strong C$ is starting to fade but it is still cushioning Canada from global food and fuel inflation.
* CIBC: w/out the GST cut, all-items inflation would be above 2%. In the last three months, core prices have been running at an annualized 2.9% clip, its quickest pace since April 2007. CPI
* Ontario had the slowest price increase.
* Consumer prices were slow to respond to increased purchasing power of loonie, as recently as September BMO noted average 25% higher prices on similar goods between in US and Canada. Consumer pressure (including increase in cross border shopping) convincing retailers to lower prices; moderating prices; trend likely continue in coming months

Note that as Canadians come to expect a higher rate of inflation, there will be two sources of upward pressure on interest rates. The short-term source will be that the Bank of Canada will eventually have to raise the overnight funds rate to try to hold the rate of inflation to a rate that is within the Bank's guidelines or target range. The second source is via the Fisher Equation: Increases in the expected rate of inflation lead borrowers to be willing to pay, and lenders to demand, higher nominal interest rates on loans.

Now or soon might be a good time to lock in a longer term mortgage rate.