Statistics Canada has revised the latest reading on GDP, highlighting a contraction of 1.1% at an annualized rate in the second quarter, well below the 2.5% expansion forecasted in a Bloomberg survey of economists. It’s a big miss, and one that does not bode well for the Trudeau Government as we head to the polls in less than three weeks. The Canadian economy is currently suffering a bout of stagflation, with CPI inflation currently running at a 10 year high as the economy contracts.
This is one of those nightmare scenarios not only for the Trudeau Government but the Bank of Canada as well. Pretty hard to pare back stimulus with a big miss on GDP. The official narrative on inflation is that it remains nothing to be worried about, “transitory” as they like to say. However, with covid lingering around it appears supply chain impairments are going to persist, and inflationary pressures will remain. As my good friend Ben Rabidoux just pointed out, the Canada Farm Product Price Index, which measures the change in prices that farmers receive for the agriculture commodities they produce and sell, has surged 24.4% y/y in June, tied for highest reading since late 1970s. In other words, food inflation, which the government suggests is currently running at 1.8%, is going much higher. If you think people are upset about the cost of living now, Bon Appetit.
Speaking of inflationary pressures and the cost of living, there’s not much good news there either. August housing data for Toronto & Vancouver released this past week shows a chronic lack of new listings coming to market, providing little relief for prospective home buyers. In Toronto, new listings crashed 43% year-over-year, falling to their lowest total in over a decade. Here in Greater Vancouver, new listings fell 31%. This shortage continues to impact the single family housing market the most, as total inventory for sale is now at 20 year lows in both markets.
Ironically, coming back full circle, the big miss in GDP was largely due to a pull-back in housing activity, where investment in residential structures fell by an annualized 12%. Keep this in mind as we head to the polls. Governments are trying to grapple a cost of living crisis while also maintaining the economic engine that is housing investment. Speaking of investment, did you know 27% of federal MP’s are property investors? I imagine the other 73% own at least their primary residence. Something to chew on.
Three Things I’m Watching:
2. Canada Farm Product Price Index up 24% y/y in June. Highest reading since the 1970’s.