Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 2.4 per cent in January year-over-year, following a 2.2 per cent increase in December. Excluding the impact of higher gasoline prices, national CPI rose by 2.0 per cent year-over-year. The rise in gas prices in January were largely a function of concerns over global oil supplies in response to international political events. The Bank of Canada's three measures of trend inflation fell to average 2.0 per cent in January.

In B.C., CPI grew to 2.3 per cent year-over-year, above last month's increase of 2.1 per cent. Notable increases in prices were for gas and alcohol, tobacco and cannabis. In contrast, prices for household furnishings fell. 

Although the Bank of Canada has noted that inflation has been close to its target, the Bank will likely continue its cautious approach and look for major deterioration in other key economic indicators before deciding on a course of action at their next  interest rate announcement in March.

Canadian housing starts increased by 8.8% m/m in January to 213,224 units at a seasonally adjusted annual rate (SAAR). The increase was led by Ontario and Quebec. The trend in national housing starts fell, averaging about 211,000 units SAAR over the past six months. 

In BC, housing starts fell by 39% m/m to 26,237 units SAAR, which follows last month's strong reporting of 42,864 units. The last time provincial sales were this low was May 2015. The inclement weather in the province likely delayed starts for many projects so we could expect a pick-up in the following months. Compared to the same time last year, provincial starts were down by 39%.  

Looking at census metropolitan areas in BC: 

Housing starts in Vancouver were down by 53% in January to 12,927 units SAAR. Compared to last year in January, housing starts were down by 49%. The decline was largely due to a contraction in the volatile multi-unit segment (-54%), though singles were also down (-21%).  

In Victoria, housing starts were down by 79% m/m to 698 units SAAR, entirely driven by the multi-unit segment. Compared to a year ago in January, housing starts were down by 76%.  

In Kelowna, housing starts increased by 77% m/m to 1,610 units SAAR, following low levels reported in the previous month. The increase was due to the multi-unit segment. Year-over-year starts were down by 62% in the region. 

Monthly housing starts in Abbotsford-Mission were up by 20% at 3,000 units SAAR. Multi-unit starts were up 29%, while singles were down by 37% in the region. Compared to the same time last year, new home construction was up by 270%.  

Another good news report on the Canadian employment front. January reported an increase of 35,000 jobs (0.2%), adding to the increase reported in the previous month. This brought the national unemployment rate down from 5.6% in December to 5.5% in January.

Regionally, increases were primarily in Quebec (19,000), Manitoba (6,500) and New Brunswick (4,600). In contrast, employment was down in Alberta (-19,000). January's increase was entirely driven by full-time work with gains in manufacturing, construction and agriculture, while the services sector saw little change. Compared to the same month last year, Canadian employment is up by 1.4%.   

Meanwhile, employment in BC rose by 3,400 jobs (0.1%) in January, following last month's decline of 6,300 jobs. Part-time work was the main driver of the increase. By industry, employment gains were reported in just under half of the sub-sectors, led by manufacturing and trade. The provincial unemployment rate fell by 0.3 percentage points to 4.5%. Compared to one year ago, employment in BC is down by 0.1% (1,500) jobs.   

The Canadian economy grew by 0.1% in November, offsetting most of the decline in October. Driving the increase were the construction industry (0.5%) and utilities (2.1%) where inclement weather in central Canada drove up demand (2.1%). 

There were gains in 15 of 20 industries, where retail trade recouped some of the loss reported in October, led by increases at auto dealers. Meanwhile, activity at stores typically associated with Black Friday were mixed. In contrast, decreases were reported in wholesale, transportation (due to an eight-day strike), and in the mining and oil sector (due to the temporary closure of a Potash mine). 

Activity at offices of real estate agents and brokers increased 1.3% in November, rising for the ninth consecutive month. The increase was due to higher housing resale activity in Montreal, Toronto and Vancouver.

We expect growth in the Canadian economy to slow down in the fourth quarter to 0.5% after posting moderate growth in the previous quarter. One factor to look out for is the transitory impact on growth of the coronavirus both in Canada and abroad. 

The Canadian economy grew by 0.1% in November, offsetting most of the decline in October. Driving the increase were the construction industry (0.5%) and utilities (2.1%) where inclement weather in central Canada drove up demand (2.1%). 

There were gains in 15 of 20 industries, where retail trade recouped some of the loss reported in October, led by increases at auto dealers. Meanwhile, activity at stores typically associated with Black Friday were mixed. In contrast, decreases were reported in wholesale, transportation (due to an eight-day strike), and in the mining and oil sector (due to the temporary closure of a Potash mine). 

Activity at offices of real estate agents and brokers increased 1.3% in November, rising for the ninth consecutive month. The increase was due to higher housing resale activity in Montreal, Toronto and Vancouver.

We expect growth in the Canadian economy to slow down in the fourth quarter to 0.5% after posting moderate growth in the previous quarter. One factor to look out for is the transitory impact on growth of the coronavirus both in Canada and abroad. 

Seasonally-adjusted Canadian retail sales rose by 0.9% in November to $51.5 billion, driven by higher sales at motor vehicle and parts dealers, and at food and beverage stores. This marks the strongest monthly increase since March 2019 (1.3%). Higher sales were reported in 6 of 11 sub-sectors, representing 70% of retail sales. 

Regionally, 6 of 10 provinces reported increases in November, led by Ontario (1.6%) and Quebec (1.4%). In contrast, retail sales in Alberta continue to trend downward (-0.9%).

In B.C., seasonally-adjusted retail sales rose by 1.1% to $7.2 billion in November, driven by increased sales at electronic, home furnishing and clothing stores. Vancouver also reported a monthly increase of 1.2% in sales. Compared to the same time last year, B.C. retail sales were up by 0.6% in November.

Canadian housing starts decreased by 3.4% in December to 197,329 units at a seasonally adjusted annual rate (SAAR). The trend in national housing starts fell, averaging about 212,000 units SAAR over the past six months. 

In BC, housing starts fell by 10% on a monthly basis to 42,791 units SAAR, largely due to contractions in the volatile multi-unit segment in regions outside of Vancouver. Compared to the same time last year, provincial starts were down by 16%. The province ended 2019 with the highest level of housing starts since 1955, the year when data collection began. 

Looking at census metropolitan areas in BC: 

Housing starts in Vancouver were flat in December, following last month's 78% increase. Compared to last year in December, housing starts were up by 12%. In 2019, Vancouver reported record-level housing starts. 

In Victoria, housing starts were down by 23% on a monthly basis to 3,263 units SAAR. Compared to a year ago in December, housing starts were down by 66%. Overall, housing starts in Victoria slowed by 18% in 2019 when compared to last year. 

In Kelowna, housing starts decreased by 74% in December to 908 units SAAR. Year-over-year starts were down by 73% in the region. In 2019, housing starts were 12% lower than in 2018.

Monthly housing starts in Abbotsford-Mission were up by 54% at 2,517 units SAAR. Compared to the same time last year, new home construction was down by 28%. Abbotsford-Mission ended 2019 on a strong note with housing starts up by 61% compared to 2018. 

A good news report. Canadian employment increased by 35,200 jobs in December, partially offsetting the previous month's decline of 71,200 jobs. This brought the national unemployment rate down from 5.9% in the previous month to 5.6% in December. Regionally, the increase was led by Ontario (25,000) and Quebec (21,000). December's increase was largely driven by full time work in the private-sector, which finally broke its losing streak. Most of the increase was in accommodation and food services (25,000) and in construction (17,000), while other industries saw little change. Compared to the same month last year, Canadian employment is up 1.7%.   

Not a great report. Employment in BC fell by 7,700 jobs in December, following last month's decline of 18,200. The decline was primarily driven by part-time employment (-6,500). By Industry, employment losses were generally broad-based, with the exception of construction, health care/social assistance, and accommodation and food services. The provincial unemployment rate fell by 0.2 percentage points to 4.8%. Compared to one year ago, employment in BC is up by 0.3% (7,100) jobs.   

Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 2.2 per cent in November year-over-year, following a 1.9 per cent increase in the previous month. Excluding the impact of higher gasoline prices, national CPI rose by 2.3 per cent year-over-year. The Bank of Canada's three measures of trend inflation rose to average 2.2 per cent in November, which means the increase in prices have been relatively broad-based.

In B.C., CPI grew to 2.2 per cent year-over-year, matching growth in October. The rise was led by food, and clothing and footwear prices, while notable declines were reported in gasoline and recreation prices. 

Although the Bank of Canada has noted that inflation has been close to its target, the Bank will likely continue its cautious approach, as it continues to monitor other key economic indicators before deciding on a course of action in 2020.

Highlights

• Wild year for interest rates
• Canadian economy: slow and steady
• Why is the Bank of Canada holding back?

Mortgage Rate Outlook
As the year ends, it's worth reflecting on how significantly the Canadian interest rate environment has changed in just twelve months. One year ago, the Canadian yield curve was its usual upward sloping shape, with markets expecting gradual rate increases by the Bank of Canada. Based partly on those expectations, Canadian mortgage rates were climbing. However, within 8 months the yield curve in Canada had inverted, bond yields tumbled, and Canadian mortgage rates were once again heading lower.

So, what happened? Most prominently, two of the worlds' largest economies entered a mutually destructive trade war, which has in turn slowed global economic growth and caused a sharp retracing of interest rate expectations. At its most fervent point, and informed by the yield curve's impressive recession forecasting record, the bond market panic pushed 5-year bond yields to just 1.13 per cent, and pulled the average 5-year mortgage contract rate well below 3 per cent and about 100 basis points below where rates ended 2018. However, by the end of summer the panic had subsided, aided by three rate cuts by the US Federal Reserve, and an otherwise occupied White House taking a step back from sabre-rattling on trade tariffs. As a result, 5-year Canadian bond yields bounced back to around 1.5 per cent and Canadian mortgage rates are now experiencing a small amount of upward pressure.

The outlook for where mortgage rates go from here is fairly clouded. While bond markets are no longer as shaken as they were six months ago, growth in the Canadian economy is still slightly below trend. Canadian monetary policy may also be tighter than necessary, given that the Bank's US counterparts have been lowering rates and global economic risk is elevated. However, those risks seem to be already priced into bond yields and absent a change in the stance of Canadian monetary policy, mortgage rates may be in for a dull year with rates remaining low and stable. Perhaps a welcome relief from the volatility of the past two years.

Economic Outlook 
The Canadian economy grew just 1.3 per cent in the fourth quarter of 2019, an expected slowdown after an abnormally strong second quarter saw real GDP growth of 3.7 per cent. The impact of elevated trade tensions is apparent in the data, with Canadian export and investment both negatively effected. Canadian exports have slowed in recent months and nonresidential investment contracted in the first half of the year.However, business sentiment outside of the energy sector has improved slightly and we have yet to see the impact on the trade sector leak into the wider economy through declining job growth or consumer spending. Household consumption spending should get a further boost as the housing market recovers and firmer price growth and lower interest rates spur increased borrowing against home equity.

Overall, we expect growth in the Canadian economy will finish 2019 at 1.6 per cent and will post trend growth of about 1.8 per cent in 2020.

Interest Rate Outlook 
With many central banks around the world lowering their policy rates, a key question is why is the Bank of Canada holding firm? The answer is simply that the Bank judges the potential of lower rates igniting a further accumulation of household debt as a greater risk to the Canadian economy than deteriorating global economic conditions. Canadian policymakers have committed to bending the curve on the Canadian household debt-to-income ratio, through a combination of higher interest rates and stricter mortgage policy.

Balanced against the goal of restraining debt, the Bank sees the risk of a further disruption in global trade as manageable. The outlook for Canadian economic growth is roughly in line with trend growth for the economy and inflation is expected to be tethered to its 2 per cent target. As long as that outlook holds, we expect the Bank will remain on the sidelines in 2020.

Canadian housing starts decreased by 0.3% in November to 201,318 units at a seasonally adjusted annual rate (SAAR). The trend in national housing starts continues to be healthy, averaging about 219,000 units SAAR over the past six months. 

In BC, housing starts rose by 41% on a monthly basis to 48,840 units SAAR, largely due to a 59% increase in construction in the multi-unit segment in Vancouver, while single detached home construction was down by 13%. Compared to the same time last year, provincial starts were up by 22%.

Looking at census metropolitan areas in BC: 

Housing starts in Vancouver were up by 78% in November at 27,688 units SAAR, following last month's lowest reported level of starts in 2019. The increase was driven entirely by the multi-unit segment. Compared to last year in November, housing starts in Vancouver were up by 26%. 

In Victoria, housing starts were up by 9% on a monthly basis to 4,224 units SAAR. Compared to a year ago, housing starts were up by 44%.

In Kelowna, housing starts decreased by 9% in November to 3,504 units SAAR. Year-over-year starts were down by 18% in the region. 

Monthly housing starts in Abbotsford-Mission were down by 30% at 1,636 units SAAR. Compared to this time last year, new home construction was up by 154%.