Inflation has at last dipped below 3%, a move that brings inflation within the Bank of Canada's established long-term target range of 1-3%. Despite this, the Bank of Canada has chosen to persist with its policy of quantitative tightening, maintaining the overnight rate at 5%, Bank Rate at 5¼% and the deposit rate at 5%.

Inflation dropped to 2.9% last month, well below the market’s expectation of 3.3%. This was largely due to tempering in food and transportation costs. Shelter remains the driver of persistent inflation. Paradoxically higher interest rates, drive higher mortgage rates, which puts upward pressure on inflation, which results in higher interest rates.

In the fourth quarter, Canada's economy exceeded expectations in growth, albeit at a sluggish pace below its potential. Real GDP expanded by 1%, rebounding from a 0.5% contraction in the previous quarter. Growth was bolstered by a notable surge in exports. Employment has also continued to grow (although still lagging behind population growth). While consumption saw a modest increase of 1%, final domestic demand declined significantly, primarily due to a sharp decrease in business investment.

Overall, global economic growth decelerated. The US experienced a slowdown in GDP growth, although it remained remarkably resilient and diversified, supported by strong contributions from both consumption and exports. Economic growth in the European Union remained stagnant, following a contraction in the previous quarter. Inflation in both the United States and the Euro area continued its downward trend.

As interest rates remain elevated, bond yields have risen since January, while corporate credit spreads have narrowed. Equity markets witnessed a significant uptick, and global oil prices exceeded projections made in the January Monetary Policy Report (MPR). There has also been a significant move to so-called “bearer assets”, as we have seen both Bitcoin and Gold strike all time highs.

The next Bank of Canada rate announcement is April 10th, 2024.

If you have any questions about today’s Market Update, feel free to call us at 604-643-0101 or email cashgroup@cgf.com .