Canadian inflation at a 3-decade high

🌲 Canadian inflation at a 3-decade high🤑

North American equity markets slightly dropped on April 20 in a roller-coaster session that kicked off strong but ended weakly, with companies’ first-quarter earnings in focus and investors" growing belief that US and Canada"s inflations are at turning points. US S&P 500 and Canada S&P/TSX composite were little change while tech-heavy NASDAQ dropped 1.22%. Netflix Inc took the biggest hit as its subscription base declined for the first time in 10 years, sinking the stock by 35% today.

Today, the Canadian inflation report came out at 6.7% year over year vs. 6.1% estimated. Food, energy, and shelter were the most significant contributors to the higher prices for Canadians. Bank of Canada already delivered 50 basis points of rates hike to combat inflation and is expected to add another 0.5% in each of the next two coming meetings in July and October, pushing the policy rate to over 2% by the end of the year. However, interest rates higher than 2.5% can materially destabilize the Canadian housing market as the household debt levels substantially rose during the pandemic by families taking mortgages to buy properties. Further, more than 30% of these mortgages are 5-year variables compared with around one percent in the US which adds to the risk of higher interest rates. Bank of Canada hopes to achieve a soft landing by increasing the rate in 2019 when the rates hit 1.75% at the highest level.