MLN NewsStream

For weeks, we've been a Debbie Downer—warning that today's inflation report promised more frights than a Stephen King novel. And man, did StatsCan deliver a shocker.

Year-over-year inflation comparables and rocketing oil prices set us up for a doozy. But these numbers aren’t just bad; they're more like 'take your lunch money, give you a wedgie and swipe left on your Tinder profile' kind of bad.

Canada's not-so-hidden inflation dragon has re-emerged from its cave—breathing fire at 4%. Here are the sriracha-hot details:

• Annual inflation: 4.0%, up from July's 3.3% (consensus: 3.8%)
• Monthly inflation: Up 0.4% (consensus: 0.2%)
• Average core inflation (y/y): 4.0% vs. 3.75% in July
• Average core inflation (3-month): 4.5% vs. 3.5% in July

One key culprit this month was crude oil, which is high-stepping to a new 11-month high near $93/bbl. Technical analysis suggests potential continuation to at least $95+, barring contrary news.

Mortgage interest costs and rent were also a driver. But, that "is partly the lagged reaction to the Bank’s rate hikes in June and July, so shelter price growth will soon slow," says Capital Economics. In large part, the BoC is looking right through mortgage interest costs, a catalyst of their own doing.

What keeps the BoC most on the edge of their boardroom chairs are the core readings — especially the 3-month ones. And, "Previously, the Bank had been concerned that underlying trends looked like they were stuck around 3.5%," reported BMO Economics today. That view "now seems almost quaint."

Market reaction

Canada's 4-year swap rate—a short-term leading indicator for fixed mortgage rates—is surging. It's up 10 bps as this is being written.

Chances of an October 25 BoC hike have doubled to 41%, with another hike now fully priced in by Q1 of 2024. But if we do get another 25 bps BoC bump, it'll likely be sooner.

Cuts are once again entirely off the board in the next 12 months—as this #OIS#-implied rate table below from Refinitiv Eikon illustrates.

OSFI's proposed "B-20" mortgage policy tightening will "push borrowers to commit mortgage fraud," expects a broker-lender CEO we spoke with off the record recently.

"We have seen a rise in fraudulent applications from borrowers frustrated with their continued inability to purchase a home," he said. "If OSFI wants to introduce more stress test type policies, they must simultaneously give federally-regulated financial institutions more abilities to fight mortgage fraud."

According to Equifax data cited by Cecely Roy at Mortgage Professionals Canada (MPC), mortgage fraud is already almost 30% higher than pre-pandemic. The only thing rising faster than that is the blood pressure of chief risk officers.

Sometimes a turtle in lead boots moves faster than our government. But hey, better late than never when it comes to this announcement.

The government has finally bent to pressure from housing groups and agreed to remove GST from purpose-built rental construction. Trudeau had sent that memo to his Finance Minister in 2015; really took the scenic route, didn't it?

This change gives rental construction a big shot in the arm. It also gives financing pros a shiny new reason to polish their PowerPoint slides and dial up their 4-plus-unit builder contacts.

We asked Canadian Home Builders' Association (CHBA) CEO Kevin Lee to break it down.