Bon Appetite

Steve Saretsky -

The consumer price index registered a donut in July. Inflation ticked in below market expectations, as consumer prices remained flat, and when seasonally adjusted actually fell 0.1%. While one can certainly debate the merits of the consumer price index, since real world inflation is, in reality, much higher, central banks would disagree. In fact, July’s figures scream deflation, the Bank of Canada’s worst nightmare. With an official policy mandate of a 2% inflation target, the Bank of Canada is falling further behind.

In fact, recent inflation figures dangerously re-affirm to policy makers that they can conjure money out of thin air with no repercussions. Print as much as you want and still no inflation. So far the Bank of Canada has pumped liquidity into the market an unprecedented pace, with their balance sheet having grown from $120B pre-COVID to nearly $550B today, and it’s about to get much larger.

With a new finance minister at them helm in Chrystia Freeland, the liberal government announced a four week extension of the CERB program, which will then transition people to a revamped employment insurance plan that looks incredibly similar to CERB. The new EI program allows self-employed Canadians and those with 120 insurable hours—which equates to a mere 3.5 weeks of work in the last 52 weeks—to apply and receive a minimum payment of $400 per week. These benefits will last a minimum of 26 weeks.

In addition, we now have The Canada Recovery Sickness Benefit (CRSB), and The Canada Recovery Caregiving Benefit (CRCB) which offer $500/ week to those who are eligible. If you’re getting confused with all the acronyms, you’re not alone. Long story short, these programs are expected to cost an additional $37B over the coming 12 months.

Of course, none of this will ever be repaid. Instead, it is likely to end up on the Bank of Canada’s balance sheet. They call this Modern Monetary Theory, which has the basic premise that Governments can run unlimited deficits when directly financed by the central bank, and any inflation can simply be taxed away. In other words, it turns out we were wrong all along, there is such a thing as a free lunch.

Bon appetite.

Three Things I’m Watching:

1. A central banks nightmare. Deflation hits in July.

2. Home Depot sales surged a record 25% in Q2. More time spent at home is fuelling home improvements.

3. No jobs, no problem. Canadian housing sales hit record highs in July.

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! The Bank of Canada moved to the sidelines once again, appeasing premiers in BC & Ontario who publicly pleaded with the BoC last week. It’s no secret these two provinces have the most to lose, their coffers largely built on a highly levered housing market, but we’ll...

Steve Saretsky -

Happy Monday Morning! A few weeks ago we summarized the cabinet shuffle, arguing the replacement of both the housing minister and immigration minister was simply rearring deck chairs on the Titanic. When new immigration minister Marc Miller was repeatedly questioned about rampant immigration putting strains on infrastructure and housing, he noted,...

Steve Saretsky -

Happy Monday morning! The Federal government is ramping up the noise amidst dismal polling numbers and a federal election only two years away. We had a cabinet shuffle just a few weeks ago, which included the immigration minister becoming the new housing minister. This week they arranged a housing retreat...

Steve Saretsky -

Happy Monday Morning! Headline CPI inflation surprised to the upside this past week, pushing back up to 3.3% and well above market expectations of 3%. However, those who have been following along here will know the importance of base effects. When headline inflation fell to 2.8% last month we were...

Steve Saretsky -

Happy Monday Morning! It’s been a few weeks now since the Trudeau government shuffled his cabinet ministers, naming both a new housing minsiter and a new immigration minister. However, as we discussed a few weeks ago in my piece, Same Faces, Different Places, nothing has fundamentally changed. These are the same...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022