HIGHLIGHTS OF THE WEEK – June 23
Both headline and core inflation (CPI ex-food and energy) exceeded market expectations for May, rising to 2.1% and 2.0% year-over-year, respectively. So far in 2014, inflation has been running faster than most market participants had been expecting.
Following its meeting on Wednesday, the FOMC decided to taper another $10bn from its monthly asset purchases. It will continue to add $15bn of mortgage-backed securities and $20bn of longer-term treasuries to its holdings per month. It also kept the fed funds rate at the current level of 0-0.25%.
The FOMC also released its summary of economic projections. The dots – representing FOMC participant views on the appropriate pace of interest rate hikes – showed a slightly higher median level of interest rates for 2015 and 2016, but a slightly lower long-term equilibrium rate.
Data on retail sales, inflation, the housing market and household balance sheets over the past week put the Canadian consumer in the spotlight.
This week’s data confirmed that the housing market and consumer spending sprung back into action in the second quarter, after severe weather restrained activity in Q1. However, looking farther ahead, there is less impetus for a further leg up in either area over the medium term.
Inflation continued to accelerate in May, with headline up 2.3% year-on-year, and core inflation now at 1.7%. TD Economics expects core inflation to increase towards the Bank of Canada’s 2% target over the next year and a half, but disappointing growth so far this year, coupled with modest wage gains should keep further progress gradual.
For further information, please contact:
John Maveety Manager, Residential Mortgages – Greater Ottawa Area TD Canada Trust
T: (613) 371-1984 F: (888) 899-1984 P: (866) 767-5446