On July 24, 2024, the Bank of Canada reduced its target for the overnight rate by 0.25 percentage points to 4.5%, with the Bank Rate at 4.75% and the deposit rate at 4.5%. It was the second cut in a row.
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What the Bank said
- CPI inflation moderated to 2.7% in June. Core inflation has been below 3% for several months.
- Shelter price inflation remains high, driven by rent and mortgage interest costs.
- Population growth of about 3% means excess supply in the economy has increased. Household spending, including housing, has been weak.
- Residential investment is expected to grow robustly. New limits on non-permanent resident admissions should slow population growth.
- The Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025 and 2.4% in 2026.
What it means for Calgary
Two cuts in two months add up to a half-point drop for variable-rate borrowers. Slower national population growth, together with lower rates, will shape Calgary demand in 2025. The next decision is on September 4, 2024.
Compared with June
In June, the Bank cut for the first time and said data had increased its confidence that inflation would keep moving toward 2%. In July, it went further. CPI inflation was 2.7% in June, after increasing in May, and the Bank said broad inflationary pressures are easing. Its preferred core measures have been below 3% for several months, and the breadth of price increases is back near its historical norm. Unemployment, which was 6.1% in March, has risen to 6.4%, and job seekers are taking longer to find work.
The new forecast
The Bank’s July Monetary Policy Report expects core inflation to slow to about 2.5% in the second half of 2024 and ease gradually through 2025. CPI inflation may fall below core inflation later this year because of base-year effects on gasoline prices, then edge up again before settling around 2% next year. Growth is forecast at 1.2% in 2024, 2.1% in 2025 and 2.4% in 2026, compared with April’s forecast of 1.5%, 2.2% and 1.9%. With robust population growth of about 3%, the economy’s potential output is still growing faster than GDP.
Shelter is still the biggest pressure
Shelter price inflation remains high because of rent and mortgage interest costs and is still the biggest contributor to total inflation. Prices in services closely tied to wages, such as restaurants and personal care, are also elevated. These are the areas the Bank says are holding inflation up, which is one reason it is cutting in small steps.
What it means for Calgary buyers and sellers
Calgary’s market in June had 2,738 sales, 1.4 months of supply and a benchmark of $608,000. Two quarter-point cuts lower the cost of variable-rate borrowing by half a point, and many buyers will see slightly higher pre-approval amounts. At the same time, the Bank expects national population growth to slow in 2025 because of new limits on non-permanent residents. For Calgary, lower rates could support demand, while slower migration and more new homes could ease it.
For borrowers, the practical step is to review your mortgage before renewal and ask how a variable rate, a short fixed term and a longer fixed term compare. Buyers should not stretch their budget on the expectation of more cuts; each decision depends on new data. The next decision is on September 4, 2024.
The global picture also supported a cut. The Bank said the expected slowdown in the United States is materializing, US inflation looks to have resumed its downward path, and global financial conditions have eased. Oil prices were around the levels assumed in April, which matters for Alberta’s economy and for Calgary jobs.
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