The inflation story isn’t over yet, although we all wish it were. Canada is seeing significant and encouraging drops just in the last few months in a number of areas: gas most prominently, but also cars, furniture, cannabis and recreation. But inflation has still grown slightly overall, as food, rent, and household essentials (soap, toothpaste) continued to rise.
We now have inflation going in two different directions: goods have dropped, while services continue to increase (don’t forget Colliers is part of ”services,” so that’s not all bad news). The problem is, it’s much harder to economize on services... if you need daycare, or health care, or housing, there’s not a lot of wiggle room. We can skimp on shoes and keep our used car a little longer, but you need food and housing to live.
The CBC ”Mind Your Business” newsletter (which I’d recommend to everyone) summed it up well:
- Part of the problem is how much inflation has shifted around. When prices started rising last year, the gains were all (mostly) contained to globally sensitive products. Snarled-up global supply chains drove up the cost of getting goods... as inflation peaked, those first inflationary sectors began to relent. But it became a game of whack-a-mole. As inflation eased in some areas, it started to creep up in others.
I’m honestly unsure what the endgame is here. Food can’t keep rising like this... can it? Can we honestly say pandemic shutdowns three years ago account for a huge rise in the price of paper towels? Can rent keep increasing beyond salaries? And for our industry, does this mean another rate hike or three in 2023?
Inflation continues to trend slightly lower, but remains well above target levels. Goods are dropping while services are still rising and keeping inflation above 5%.
Article of the month
Canada is scaring away its new immigrants (National Post) We talk a lot about immigration driving certain assets like apartments, and providing the basis for the growth of major cities. But recent headlines have pointed out that most immigrants (yes, most) don’t end up becoming Canadian citizens. Surely the concerns were a strained health care system? Anger at the government? The long cold winter? Not at all... the top reasons were ”cost of living” and ”foreign experience not recognized.”
Best of vendors and competitors
Denominator Effect Takes Hold as Pension Funds’ Real Estate Target-to-Allocation Gap Falls to Just 0.5% (CBRE) The decline in stock markets hurts real estate investment. Wait... what? Shouldn’t real estate benefit from the decline in other assets (crypto, bonds, public equity)? For institutional investors, it doesn’t work that way. When stocks decline, they are ”overweight” in real estate, and the result is less new acquisition in real estate.