Happy Monday Morning! Headline inflation ripped higher than expected this week, jumping back up to 4% for the month of August. It turns out Chrystia Freeland’s premature victory lap marked the bottom back in June. There’s a lesson here in base effects, you’d think her economics team would have tapped her on the shoulder back in June. Perhaps they were on summer holidays. While some were asleep at the wheel, others were crunching the data. Several months ago we highlighted some research from our good friend Ben Rabidoux of Edge Analytics. “We have more challenging base effects on deck given the low monthly prints from August and September 2022 which will drop out of the annual data set over the next 2 months. In fact, if CPI rises a mere 0.2% each month for the remainder of the year, we’ll end 2023 with an inflation rate north of 4%. And if CPI averages 0.3% monthly gain (in line with the average over the past 6 months), we’ll end up with an inflation rate pushing 5%.” The concerning thing here is not that Ben was right, but rather how quickly we got back to 4%, and if current trends hold the Bank

Happy Monday Morning! Over the past several months we’ve been highlighting the marked slowdown in residential building permits, a leading indicator of future supply. This is what happens when the cost of capital doubles, and in some cases, triples. This is a disaster in the making for a federal government insistent on maintaining immigration targets, and in fact far exceeding them, with 1.2 million new migrants moving to Canada last year. Sliding in the polls, the Liberal government has been in full panic mode. With their feet to the fire we finally got some change. Just this past week the Liberal government announced the removal of GST on purpose built rental units. They had proposed this change back in 2015. As they say, better late than never. So effective immediately, this change increases the GST Rental Rebate from 36% to 100% on all brand new rental construction consisting of a minimum of four private dwelling units. In other words, a 5% savings for rental developers, which will be enough to revive some projects that otherwise never stood a chance in this economic environment. Hopefully this allows the rental constuction boom to continue. You’ll notice rental construction took off in the

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 get to that in a second. Here’s the coles notes from Tiff Macklem post pause. “Monetary policy is working to bring inflation down—and we are encouraged by the progress we’ve made so far. Consumer price index (CPI) inflation was 3.3% in July, roughly in line with what we expected in our July Monetary Policy Report. Our 2% target is now in sight. But we are not there yet and we are concerned progress has slowed. Monetary policy still has work to do to restore price stability for Canadians, and we are committed to staying the course.” In other words likely no more hikes, but also no cuts. That’s no bueno for Canadian households which are finally showing signs of buckling under mounting interest rates. When Sarah Dueck and her husband bought a new house in Langley, B.C., two years ago, interest rates were low. They had little doubt they could pay

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, “I don’t see a world in which we lower immigration targets, the need is too great … whether we revise them upwards or not is something that I have to look at but certainly, I don’t think we will lower them.” Fast forward a few weeks and Miller is suddenly concerned around private sector colleges abusing the immigration system. So what changed. Why the sudden change of heart? It turns out, according to one of Canada’s most esteemed economists, we have been grossly undercounting non permanent residents. CIBC’s chief econmist, Benjamin Tal, notes the government estimate of the number of non-permanent residents in the country in 2021 was around one million. But his analysis found there were closer to two million non-permanent residents. A ONE MILLION person rounding error. Stats Canada is now rushing to fix the issue, saying it will introduce a “revised methodology” for counting non-permanent residents starting next month.