May 28, 2024

Alpen Investment Advisors TLDR Financial Market Recap: May 2024

Inflation cools, GDP per capita continues to decline, and affordability crisis in major Canadian cities.

1.    Canada's Inflation Hits Three-Year Low, Raising Prospects for June RateCut

Canada's annual inflation rate decreased to 2.7% in April from 2.9% in March, marking a three-year low, with core price measures also falling below 3% (Mukherjee & Shakil, 2024). The reduction in inflation was primarily attributed to slower growth in food prices, particularly meat, although gasoline prices rose by 6.1%due to seasonal changes and higher carbon levies. In Alberta, rent prices surged by 16.2% due to strong migration, significantly surpassing the national increase of 8.2%, leading to inadequate living conditions for students.Following the inflation report, the Canadian dollar declined by 0.29% against the U.S. dollar and yields on government two-year bonds dropped by 7.3 basis points to 4.269% (Benchetrit, 2024).

Figure 1: Canada’s CPI vs Interest Rates
Figure 2: Essential Goods Percentage PointContribution to CPI

The decline in inflation and core measures has increased expectations for an interest rate cut in June, with money market bets rising to nearly 55%(Mukherjee & Shakil, 2024). The Bank of Canada's preferred inflation measures, such as CPI-median and CPI-trim, have shown significant easing from their peak levels in mid-2022, reinforcing this outlook (Fan & Xu, 2024).However, economists from CIBC and BMO caution that any rate cuts will be gradual and influenced by the U.S. Federal Reserve's policies, with anticipated delays in economic impacts (Benchetrit, 2024).

While unit labour costs remain elevated, they are expected to decrease as wage growth slows, further reducing inflationary pressures (Fan & Xu, 2024). This scenario highlights the complexities of balancing monetary policy amidst ongoing economic challenges. As the Bank of Canada considers its next steps, it must navigate these intricate economic conditions to maintain stability and promote sustainable growth.

2.    Canadian GDP Per Capita Output Declines for Seventh Consecutive Quarter

In the first quarter of 2024, Canada’s economy expanded at an annualized rate of 2.5%, a notable increase from the 1% growth in the last quarter of 2023. However, this growth was outpaced by the country's rapid population increase, resulting in a 1% annualized decline in GDP per capita, marking the seventh consecutive quarter of shrinking per capita output (Janzen and Xu, 2024). Consumer spending saw a modest rise of 1.1% annually, driven by higher machinery purchases in business investment and increased imports, though net trade slightly detracted from GDP growth. Sectoral performance varied, with gains from oil extraction in Alberta offset by declines in manufacturing and retail sales volumes.

Figure 3: Canada Per-Capita GDP

April indicated a strong start to the second quarter, with core retail sales (excluding motor vehicles) showing significant growth driven by purchases related to home improvement, sporting goods, and clothing in preparation for warmer weather (Freestone, 2024). Spending on home furnishings, renovation materials, and garden supplies surged for the first time in a year, significantly boosted by building materials. Additionally, hotel and restaurants pending rebounded as Canadians began to venture out more, signalling a positive trend for the service sector. However, spending on groceries, gasoline, and miscellaneous goods remained subdued, indicating selective consumer optimism.

Figure 4: Canadian Retail Sales % Change inSeasonality

Despite these positive developments, economic challenges persist. The unemployment rate has risen by one percentage point over the past year, and layoffs have increased. Business insolvencies saw a rise in the first quarter, and household credit delinquency rates remain high, adding to economic headwinds. Nevertheless, labour market data showed a 0.8% increase in hours worked inApril, suggesting a potential boost in economic activity. With wage pressures and inflation easing, there is cautious optimism for consumer spending in the latter half of the year, contingent on the expected interest rate cuts from theBank of Canada, likely starting in June (Freestone, 2024).

3.    Affordability Crisis Fuels Exodus from Major Cities

In recent years, young families and early-career workers in Canada have been leaving expensive cities in search of more affordable living conditions, a trend that has intensified post-pandemic. Major urban centres like Toronto, Vancouver, and Montreal have seen substantial population losses due to high living costs. Toronto alone saw a loss of approximately 93,000residents in the year leading up to July 1, 2023, with many moving to more affordable regions like Alberta, which recorded a net gain of nearly 46,000people over the same period (Thanthong-Knight, 2024). The primary driver of this migration is the affordability crisis, particularly among young adults and families, who find it increasingly difficult to maintain a comfortable standard of living in these urban centres (Wong, 2024).

Figure 5: Canadian Interprovincial and Intraprovincial Migration

The economic and social implications of this migration are significant. While temporary immigration has kept overall population numbers steady in major cities, the outflow of long-term residents could transform these cities into transient hubs, impacting economic stability and growth.Addressing these issues will require long-term solutions, such as improving transportation infrastructure to make commuting more feasible, but immediate action is lacking (Wong, 2024). Policymakers must take heed of these trends to ensure balanced and sustainable growth for the future of Canada's urban and rural communities (Thanthong-Knight, 2024).

Financial Tip of the Month: Budget for the Summer

As we transition into the summer months, it's a great time to review and adjust your budget to accommodate seasonal expenses. Summer often brings additional costs such as vacations, higher utility bills due to air conditioning, and outdoor activities or events.

At Alpen Investment Advisors, your trusted North Vancouver iA Investia team, we are committed to keeping our valued clients informed. We trust that you have found this market recap informative and insightful. Please do not hesitate to reach out to your dedicated financial advisor, for any questions about your portfolio or to help navigate the process of growing and preserving your wealth.  



Benchetrit, J. (2024, May 21). Inflation cooled to 2.7% in April as food price growth slowed. CBC News.

Fan, C., & Xu, A. (2024, May 21). RBC canadian inflation watch. RBC Thought Leadership.

Freestone, C. (2024, May 10). RBC consumer spending tracker - RBC economics. RBC Thought Leadership.

Janzen, N., & Xu, A. (2024, May 24). Forward guidance: Our weekly preview - RBC economics. RBC Thought Leadership.

Shakil, I., & Mukherjee, P. (2024, May 21). Canada’s inflation cools to three-year low boosting June rate cut bets | Reuters.Reuters.

Thanthong-Knight, R. (2024, May 22). Young people in Canada are trading Toronto for cheaper suburbs and cities - bnnbloomberg. BNN Bloomberg.

Wong, D. (2024, May 23). Canadians fleeingToronto & vancouver accelerated to a record pace: BMO. Better Dwelling.

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