25 Feb

Simple way to forecast the inflation rate for 2024

General

Posted by: Adam Sale

Youtube Video - Forcasting Inflation

Youtube Video – Forecasting Inflation

Forecasting the Inflation Rate for 2024

Here is a simple way to forecast the inflation rate for 2024 – conservatively, of course.

First, grab the CPI data from Rateinflation.com and paste it into an excel sheet.

Then, look for some patterns in these numbers. Notice how the CPI numbers change from one month to the next.

I noticed CPI data increased A LOT 🚀 in the first half of the year, but then remains relatively flat in the latter half.

Next, I subtracted the CPI highs and lows within each year to determine the range.

2022 had a range of 8.7 (145.3 – 154)
2023 had a range of 4.9 (153.9 – 158.8)⬇️

This tells me the rate at which CPI is rising is trending downwards.

A conservative forecast would then mean we expect a similar range to last year (4.9).

I then used CPI from January (158.3) as my base for the year and assumed by August we’ll see CPI increase by 4.9 to 163.2. I also assumed CPI would then remain relatively flat from August to December. (Similar pattern to the last 2 years).

Now that we have our data, we can find the inflation rate. Apply the following formula: (Month 2024-month 2023)/month 2023

Example: (January 2024 – January 2023) / January 2023
= (158.3 – 153.9) / 153.9
= 2.86%

After doing this exercise I was pretty surprised to see this forecast was in-line with the Bank of Canada’s projections:

“The Bank projects that inflation will stay around 3% through the first half of 2024, returning to target in 2025.”

This is a pretty fun exercise to try, very curious to see what actual numbers look like in the coming months 👀

20 Feb

The ‘Base Year Effect’ & Inflation Decreases to 2.85%

General

Posted by: Adam Sale

Youtube Clip - Base Year Effect

Link to Base Year Effect youtube movie

Inflation is down to 2.85%, but CPI remains 158.3

Last month I sent an email showing why inflation had increased even though CPI number had decreased.

And now today’s inflation report shows inflation decreasing, but the CPI number remains the same as last month, why is this happening?

To explain this better, let’s do a quick recap on how to calculate inflation.

Inflation Rate: The rate-of-change on prices of goods, and the prices of goods is represented by the Consumer Price Index (CPI).

Inflation Rate = (Current Month CPI – Previous Year’s Month CPI) / Previous Year’s Month
Base Year Effect Image

Image of Canada’s CPI Data from 2020 to 2024

Economic Market Report

The inflation rate decreasing is awesome news and we are already seeing bond yields correcting from the recent run-up.

However, we are still a long ways away from the 2% target, and personally I’d be shocked if we saw the Bank of Canada decrease interest rates before July

On February 29th, the Q4 GDP Report is being released and this will likely show the economy outperforming the Bank of Canada’s original expectation due to a strong December.

A stronger-than-expected GDP Report will cause the bond yields to spike upwards momentarily. Any refinances or purchases should get their pre-approvals/rate holds in ahead of time.

The Royal Bank released a statement regarding the upcoming GDP Shock: (Read this)

Bottom Line: The reacceleration of growth towards the end of 2023 should be taken with a grain of salt – early GDP estimates are revision-prone and a lot of the strength in November was due to one off factors such as recoveries from earlier factory shutdowns and strike activities that are unlikely to be repeated in the following months.

Taking the advance December estimate at face value, growth in Q4 is tracking an annualized increase of 1.2% which is above our tracking for a small decline. That however would still mark a sixth consecutive quarterly decline when growth is counted on a per-capita basis, as population growth continues to surge. Overall we continue to expect pressures from elevated interest rates to curb consumer demand, stalling growth in both output and inflation over the first half of 2024 before the BoC is expected to cut rates in June.

Summary:

It seems we are still heading towards an economic slowdown even though the GDP report will likely be stronger-than-expected on February 29th.

Get your pre-approvals on purchases, renewals or refinances in before February 29th as we may see interest rates spike after the GDP Report is released.

Adam Sale

778-215-4121

5 Feb

Canada Extends Foreign Buyer Ban until 2027

General

Posted by: Adam Sale

Youtube Link

Canada Foreign Buyer Ban – Youtube

📣HUgE NeWS! Foreign buyer Ban extended until 2027!! 📣

I 💯 support this move and think this should be the law moving forward. Canadian real estate should be reserved for people who live, work and pay taxes in Canada. 💸

Will the extension to the foreign buyer-ban make much of a difference⁉️

Probably not.

CMHC released their transaction results for 2021 (before the initial buyer ban), and it showed only 2% of all real estate transactions were from non-residents, and I’d argue this number is likely lower in Vancouver as there is a very steep foreign buyers tax of 20%❗️

Interestingly, this report also showed 4.3% (1/23) of homes in Vancouver were owned by non-residents. 2021.. What are your thoughts regarding non-residents owning homes in Vancouver? 🏠