November 24, 2023

Alpen Investment Advisors TLDR Financial Market Recap: November 2023

2024 TFSA contribution room increases, October 2023 saw a decline in inflation, and the Canadian budget update.

  1. Increase in TFSA Contribution Limit for 2024

The TFSA limit in Canada will increase to $7,000 in 2024, up from $6,500 in 2023 (Weatherup, 2023). This change, attributed to higher inflation rates, is significant as it's the first instance of consecutive annual increases in the TFSA limit since its inception (Mezzetta, 2023). The limit adjustments are based on the Consumer Price Index (CPI) data and the federal indexation factor, which is approximately 4.7% for 2024. The contribution room for individuals eligible since 2009 will increase to $95,000 by 2024.

  1. Inflation Trends in October

Canada's inflation rate showed a significant decrease in October, dropping to 3.1% from September's 3.8% (Suhanic, 2023). A key factor in this decline was a substantial 7.8% reduction in gasoline prices. This decrease was a reaction to the heightened prices in October 2022, following OPEC's decision to cut oil production (The Canadian Press, 2023). The overall Consumer Price Index (CPI), excluding gasoline, experienced a slight decrease, with a rise of 3.6% compared to 3.7% in the previous month. The trend is indicative of subtle fluctuations in the prices of different products and services.

Figure 1:  Canadian Inflation (The Canadian Press, 2023)

The slowdown in inflation was not uniform across all sectors, with some experiencing a greater drop than others. Goods prices increased by a moderate 1.6%, while service prices saw a more significant jump, rising by 4.6%. This increase in service prices was largely driven by higher costs in areas such as travel tours, rent, property taxes, and other charges. These figures contribute to a comprehensive understanding of the inflation dynamics and how they differ across various sectors of the economy.

Figure 2: CPI Percentage Change (Suhanic, 2023)

The recent deceleration in inflation in Canada has prompted some economists to predict a potential cut in interest rates by the Bank of Canada as early as next spring. This projection aligns with expectations of a continued decline in inflation, with projections indicating it could fall below 3% shortly. Moreover, inflation is anticipated to reach the Bank's target of 2% by the third quarter of 2024, indicating a return to more stable economic conditions.  

  1. Canada's Budget Update

On November 21, 2023, Canada's Finance Minister Chrystia Freeland announced a major financial plan, committing $20.8 billion over six years primarily for affordable housing and clean energy transition (Kane, 2023). The plan aims to spread costs over time, with the 2023 deficit projected at $40 billion, slightly lower than expected but with higher future deficits anticipated. The strategy aims to reduce federal debt relative to GDP, preserving Canada's AAA credit rating. The debt-to-GDP ratio is expected to peak at 42.7% next year and decrease to 39.1% by 2028-2029.

To support this, the government will issue $71 billion in bonds and treasury bills. Key investments include $1 billion from 2025-2026 for over 7,000 affordable homes and $15 billion for more than 30,000 new rental homes. Furthermore, the Canada Growth Fund has issued a new Canadian mortgage charter and carbon contracts that demonstrate a commitment to financial stability and environmental sustainability.

Financial Tip of the Month:

As the year draws to a close, November is an ideal time to review your financial situation and realign it with your financial goals. This month is crucial for making any needed adjustments and strategizing to optimize your tax position. It's a great time to reach out and consult with your financial advisor to ensure you're on track and making the most of potential tax-saving opportunities.

We hope you find this information valuable and informative. As always, please don't hesitate to reach out to us at jonathan@alpenia.ca for any questions about your portfolio or to help navigate the process of growing and preserving your wealth.

References:

Kane, B. D. (2023, November 21). Here are the key takeaways from Canada’s budget update - BNN Bloomberg. BNN Bloomberg; BNN Bloomberg. https://www.bnnbloomberg.ca/freeland-to-table-fall-economic-update-this-afternoon-1.2001769

Mezzetta, R. (2023, October 17). Inflation to trigger another rise in TFSA limit | Investment Executive. Investment Executive; https://facebook.com/InvestmentExecutive/. https://www.investmentexecutive.com/news/from-the-regulators/inflation-to-trigger-another-rise-in-tfsa-limit/

Suhanic, G. (2023, November 21). Cooling inflation raises odds of Bank of Canada interest rate hold. Financial Post; Financial Post. https://financialpost.com/news/economy/cooler-inflation-raises-odds-bank-of-canada-interest-rate-hold

The Canadian Press. (2023, November 21). Inflation in Canada: October rate slowed | CTV News. CTVNews; CTV News. https://www.ctvnews.ca/business/statistics-canada-says-annual-inflation-rate-slowed-to-3-1-in-october-1.6653805

Weatherup, G. (2023, November 21). 2024 TFSA Limit Announced. RBC Wealth Management ; RBC Wealth Management . https://ca.rbcwealthmanagement.com/fjwealth/blog/4011072-rbc-what-is-the-tfsa-limit-for-2024#:~:text=TFSA%20contribution%20limit%3F-,The%202024%20TFSA%20contribution%20limit%20is%20%247%2C000%2C%20up%20from%20

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