Canada’s inflation rate down to 2.0%!

For the first time in three years, Canada’s annual inflation rate hit the Bank of Canada’s target of 2.0% in August 2024. The Bank of Canada looks at a variety of factors when deciding to hike or lower interest rates such as price inflation, wages, unemployment, and productivity. The next policy decision announcement will be made October 23. It is widely expected that another policy interest rate cut will be announced at that time.

Canadian Personal Debt levels remarkably high and Unemployment is rising

Canada has the highest household debt to disposable income ratio in the G7, at 185% compared with an average of 125% for all G7 countries. Higher housing costs are a big factor in the growth of Canadian household debt. To mitigate this, the Canadian government has announced a new housing program effective December 15, 2024. The hope is that this will bring consumers back into the housing market, easing demand for rental accommodation. This new program raises the cap for insured mortgages from $1 million to $1.5 million and extends the mortgage amortization period from 25 to 30 years which will lower the monthly payments.

Unemployment in Canada rose to 6.6% in August 2024, the highest since October 2021. This upward trend is concerning to the Bank of Canada. All Central Banks are trying to achieve a “soft landing” – lower inflation and full employment. Rising unemployment has been a major factor in the Bank of Canada’s decisions to lower the policy interest rate three times since June to 4.25%.

U.S. numbers are different than Canada’s

Bankrate reports that the current U.S. annual inflation rate is 2.5%, the lowest since February 2021. The Federal Reserve Board also closely looks at employment and unemployment rates. The U.S. added 254,000 jobs in September, far exceeding expectations, while the unemployment rate fell to 4.1% from 4.2% in August. This means that the Federal Reserve is not under any pressure to lower interest rates quickly. The Federal Reserve wants a soft landing which means lower inflation and full employment. In the world, the U.S. economy is the 6^th most productive country per hour (from: www.worldpopulationreview.com 2024). (Canada ranks 29^th among 38 OECD countries for labour productivity despite being one of the best countries to live in. Per Organization for Economic Cooperation and Development)

China’s stimulus package

Mining stocks are up after China announced their economic stimulus package. Canada’s S&P/TSX Composite Index extended its record winning streak due to gains in energy and mining stocks after China’s announcement boosted commodity prices globally.

Elections in the offing

The United States General Election will take place on November 5, 2024. The Presidential candidates are neck and neck at the moment. There is no way to predict how the markets will react to either outcome. In Canada, there is a chance that an election may be triggered as well. The Canadian dollar has been steady of late – so the market is not reacting to any political uncertainty here. The price of oil is still the Canadian dollar’s prime mover.

International instability

Traditionally, markets do not like uncertainty but reactions to the instability, whether political, climate related or other types, have been muted. Health issues such as the outbreak of Ebola in West Africa, and the Marburg virus, do not seem to concern the markets either. AccuWeather estimates that Hurricane Helene that tore across Florida up to North Carolina, will rank in the top ten deadliest storms and will cause total damage and economic loss of USD $30.5 billion to USD $47.5 billion (per CoreLogic). The hurricane season is not over yet! Wars and weather can be both a stimulus and a drag on the economy.

Market movers this quarter (Source: National Bank of Canada)

In Canada, the top performing sectors this quarter include Materials up 11.7%, Financials up 15.8%, and Utilities up 15.3%. The laggards were Energy up 0.8% and Industrials up 2.4%.

PMC’s take

We continue to take the long-term view and invest in solid companies. This approach smooths out the highs and the lows and produces more predictable returns for our clients.

PMC IN THE NEWS

Anish Chopra is interviewed by The Canadian Press about Canadian and US interest rate policy.

https://ca.finance.yahoo.com/news/energy-stocks-help-lift-p-153449750.html

CLIENT QUESTION CORNER

1. How does TFSA contribution room work?

The TFSA (Tax Free Savings Account) has an annual contribution amount that has been accumulating since 2009. In 2024, the annual contribution amount is $7,000, and the Cumulative Contribution Limit is $95,000. The TFSA is a flexible registered savings account, in that funds can be withdrawn from the TFSA, then replaced the following year to continue to grow and compound tax free. Over contributions are penalized, check with the CRA.

2. How does the RRSP contribution differ from the TFSA?

RRSP (Registered Retirement Savings Plan) and TFSA are registered products that allow investments to grow “tax-free”.  Both RRSP and TFSA contributions are made in after-tax dollars. The RRSP annual contribution amount is determined by the individual’s previous year’s income. The individual’s annual RRSP contribution triggers a tax refund on that contribution. Withdrawals from the RRSP/RIF are taxable. Once money is withdrawn, the RRSP contribution room is gone. On the other hand, TFSA contributions do not trigger a tax refund, and so withdrawals from a TFSA are tax free. See above for TFSA withdrawal information.

3. When is the last date to contribute to the RRSP for the 2024 tax year?

For the 2024 tax year, the last date to contribute to your RRSP is February 28, 2025. However, leaving it to the last moment does not serve you, as you will be missing on the tax-free growth within the RRSP. Portfolio Management Corporation works with National Bank to ensure that the annual contributions are made in a timely manner. The suggested “last day to contribute to your RRSP for 2024 tax year” is February 15, 2025.

PMC 60th Anniversary - The years from 2010 to 2024

Since 2010, PMC has experienced remarkable growth. Key contributors to this success include the new additions to our team: Bonni Ura, Kathy Tevlin, Bill Lammers, Kaveena Maharaj as well as Anish Chopra, Joan Smart, and Regina Wong. Together with Fred Burton, Rhonda Dalley, and Fionnuala Carroll, this talented group of ten forms the dedicated team entrusted with safeguarding and growing your wealth. The years after 2010, much like those immediately preceding it, presented a challenging landscape for investors. The PMC team adeptly managed the economic fallout of the Great Financial Crisis, including record low interest rates and minimal inflation. They also successfully navigated the more recent challenges of the Covid-19 pandemic and the resulting surge in inflation.

Humour at 60!

In addition to Canadian firms Tim Horton’s and Home Hardware, the global innovator in athletic footwear, apparel and equipment, Nike, is also celebrating its 60th anniversary. So, what do your investment portfolio and sneakers have in common?

PMC diversifies your investments, and Nike diversifies your shoe collection. Both are making sure you have a strong footing in life.

Commentary reflects the opinions of Portfolio Management Corporation (PMC) at the time of writing and may reference sources that PMC believes to be accurate and reliable. PMC does not guarantee the accuracy or completeness of such information, and our opinions and viewpoints may change over time. Forward-looking statements are based on historical events and trends and may differ from actual results.