Home prices continue to rise month-over-month in Metro Vancouver, and Burnaby is no exception.

Detached home and apartment prices have risen across the city, according to a new report by the Real Estate Board of Greater Vancouver (REBGV).

“Despite elevated borrowing costs, there continues to be too little resale inventory available relative to the pool of buyers in Metro Vancouver,” said Andrew Lis, REBGV’s director of economics and data analytics, in a news release. “This is the fundamental reason we continue to see prices increase month over month across all segments.”

In Burnaby, the estimated price of a typical property (called the benchmark price), ranged from about $1.03 million in north Burnaby to $1.19 million in east Burnaby. South Burnaby saw a benchmark price of $1.12 million last month across all property types.

North Burnaby saw a 0.9 per cent increase from May, east Burnaby a 2.7 per cent increase, and South Burnaby a 1 per cent increase from the previous month.

But in the last year, prices have dropped a little. North Burnaby saw its residential benchmark drop 3.7 per cent from a year ago – but it’s still up 26.8 per cent from three years ago.

And townhome prices in east Burnaby fell slightly since May, with a benchmark of $863,500 (down 1.3 per cent, but up 27.1 per cent from three years ago).

The REBGV is calling on the provincial government to adjust the threshold for the first-time homebuyers’ exemption from the property transfer tax.

The REBGV noted the benchmark price for apartments in the region is now $767,000 – while the current threshold for the first-time buyers’ tax exemption is $525,000.

“This is a simple policy adjustment that could help more first-time buyers afford a home right now,” Lis said.

In Burnaby last month, there were 65 detached homes sold (median selling price: $2 million), 67 attached homes (median price: $990,000), and 258 apartments sold (median price: $738,000), according to the REBGV data.

Benchmark prices for apartments

• Burnaby East: $798,600 (up 1.2 per cent this month)

• Burnaby North: $753,800 (up 0.1 per cent this month)

• Burnaby South: $812,100 (up 0.8 per cent this month)

Benchmark prices for townhomes

• Burnaby East: $863,500 (down 1.3 per cent this month)

• Burnaby North: $903,500 (up 0.1 per cent this month)

• Burnaby South: $997,800 (up 0.6 per cent this month)

Benchmark prices for detached homes

• Burnaby East: $1.91 million (up 4.8 per cent this month)

• Burnaby North: $2.04 million (up 2.9 per cent this month)

• Burnaby South: $2.2 million (up 1.7 per cent this month)

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The slowdown in the Canadian housing market that marked much of last year appears over as prices and sales increase, and that strength is likely to continue, clipping affordability even more, according to economists at Desjardins Group.

A spike in home sales and prices across Canada, brought on in part by the Bank of Canada’s pause in interest rate hikes earlier this year along with a lack of listings, is no fluke, said Desjardins economists Randall Bartlett and Hélène Bégin in their residential real estate outlook headlined, “For better and for worse, Canada’s housing market is back.” The economists said strength in prices and sales will have “staying power,” which will ultimately dent affordability even more. But the Bank of Canada can’t be blamed for this round of strength. Instead, a number of other factors are at play, including strong population growth, a resilient labour market and continued flush household savings accounts, built up during the pandemic, the economists said.

For one thing, immigration to Canada is growing, and newcomers to the country are flooding into the housing market. The group plays a strong role in housing market dynamics and are even more likely to own some types of dwellings, such as condos, than people born in the country, Desjardins said. But it’s not only immigrants driving demand, and non-permanent residents, the numbers of which have also surged, are searching for places to live, too. That’s spilled into the rental market, causing rents to spike. Then, as home prices fell last year and rents rose, more people found it made financial sense to invest their money in buying a home instead of shelling out the equivalent of a mortgage payment to a landlord. The result is more people entering the housing market, sending prices and sales higher.

A strong labour market is also helping to ignite housing further. Increases to wages and job security mean people are building more wealth, and buying homes with their money. At the same time, the jobs market shows no sign of slowing down in a meaningful way, the economists said, amid continued high vacancies and a low unemployment rate all while the country welcomes an influx of immigrants. That will help keep the housing market humming along. Meanwhile, wealth gains are also coming from massive amounts of savings built up over the pandemic. Of course, it’s high income earners who still have much of these savings. They’re also more likely to deploy that money into the housing market, helping keep the rebound going.

There’s another major factor contributing to high prices: supply. Housing starts have been higher than usual, but that won’t last, Desjardins said. What’s more, the housing that’s being built isn’t what buyers really want. Most starts are condos and they are shrinking in size even as detached homes, which carry the heftiest price tag, grow bigger and bigger. The result is a “missing middle” in supply, according to the Canada Mortgage and Housing Corp. If homebuyers can’t find the types of houses they’re seeking, that will send home prices heading even higher, as competition grows for a limited number of properties. And don’t expect prospective buyers to be saved by government initiatives designed to boost housing starts. “Despite ambitious policy announcements to the contrary, there is little meaningful relief in sight from any level of government,” the report said.

Still, higher interest rates might cool the market, at least a little. The Bank of Canada raised interest rates another 25 basis points in a surprise hike in June, bringing the key policy rate to 4.75 per cent. Desjardins expects the central bank will hike by another 25 basis points at least once more, with an increase coming as early as July. That might work to keep some people on the sidelines, helping to dampen price increases and sales. The economists also caution that the full effect of interest rate hikes has yet to be felt by people with fixed-payment variable-rate mortgages, whose banks have been adding any extra interest owed to the mortgage principal instead of requiring higher payments now, thereby extending amortization periods and kicking “housing and economic pain down the road.”

It won’t be enough to take the steam out of the market completely, however. “Despite higher interest rates, housing demand is expected to remain strong for the foreseeable future,” the report said.

All those factors are playing out differently in housing markets across Canada, with some areas feeling the effects more than others. For example, British Columbia and Ontario have experienced a spike in prices and sales amid an influx of immigrants. That’s pushed younger homebuyers from those provinces to other markets in search of affordability, and Alberta, along with the Prairies and Atlantic provinces, have benefited from the migration. But now that’s causing those regions’ home prices to creep higher. As far as Quebec goes, it’s not experienced much migration, but a lack of housing starts is eating into supply, threatening affordability, the economists said. That trend is also occurring across the country and is expected to impact affordability for years to come — and not for the better.

“Unless something is done urgently to increase supply, affordability will get a lot worse before it has any hope of getting better,” Bartlett and Bégin said.

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If there’s one thing that every real estate agent, developer and homeseeker can agree on when it comes to the BC housing market, it’s that it’s always changing. 

From government interventions to leaky condos to a pandemic push to the suburbs, history proves time and again that it’s impossible to predict what’s next on our collective real estate journey. But a new report from the BC Real Estate Association (BCREA) stresses that challenging times are ahead if the province can’t significantly boost supply in the coming years, as immigration-driven demand is set to peak. The report says that a sustained 25% boost in supply would alleviate the rise in prices set to come, let’s take a look at the report and help guide you through their findings. 

 Two for the show. 

Over the next three years, there are two significant government policies that will affect housing demand in British Columbia more than any other. First on the list is the Foreign Buyers Ban, also known as the "No Home for You, Non-Canadians Act." It's like a vigilant bouncer at an exclusive nightclub, denying entry to non-Canadians seeking to snag residential properties. The goal? To cool down those sizzling home prices and prevent homes from turning into magical money-making machines. 

The real showstopper is the government's increased immigration targets. We're talking about welcoming a staggering 1.5 million new permanent residents here in Canada by 2025. B.C. alone is expected to open its doors to an estimated 217,500 new permanent residents from 2023 to 2025, nearly double the historical average immigration levels. It's a massive influx of talent, diversity, and demand storming the housing market. Brace yourselves, folks—BC is about to get cozy.

Ban-couver.

While the Foreign Buyers Ban has been put in place to prevent foreign investors from buying up homes and using them as speculative financial assets, the BCREA believes there is weak evidence that the ban will achieve its objective of lowering home prices. On the other hand, the association says that increased immigration targets will have five times more impact on demand than the Foreign Buyers Ban, necessitating a 25 percent increase in new home completions to offset the deterioration in affordability. Don’t kid yourself - that would be a massive increase. 

At the end of the day, the impact of the increase in immigration targets is much more significant than the decline in sales due to the prohibition on foreign buyers. The increased national target for immigration will translate to approximately 20,500 new BC households over and above average annual immigration. This means that there will be a 20,500-unit increase in demand for either ownership or rental housing just from permanent residents. Given the challenging affordability of many cities in BC, only a portion of the new households formed as a result of increased immigration will become homeowners.

Balancing act.

To alleviate the strain on the housing market caused by sudden changes in demand, the government can take steps to increase the supply of housing. Some of these steps may involve modifying zoning regulations to permit more construction, allocating more funds to affordable housing initiatives, and offering incentives to developers to construct additional housing units. If they’re committed to increasing supply, they need to act quickly - which is a word that, historically, most legislators around the country are unfamiliar with. 

The BCREA found that to keep up with the increase in immigration, new home construction in BC must increase by 25 percent over the next five years, reaching a record level of about 43,000 completions annually. Although that pace of completion is similar to what was achieved in 2020 and 2021, higher interest rates and weaker market conditions make that rate of completion much more difficult to hit. Additionally, the ban on foreign buyers has made it more challenging to finance new home construction without access to international capital markets.

Slow your roll.

Lowering price growth so that income growth can catch up to prices is integral to improving housing affordability in BC, and an appropriate supply response could offset the impact on affordability. On a longer time horizon, it can also help to make progress in permanently improving affordability. 

Instead of policies designed to limit demand through taxation or prohibition, the BCREA’s findings suggest that governments should pursue an abundance agenda for housing. An agenda that includes more housing, fewer obstacles to building more housing, and a streamlined process to get more housing to the market faster. Without such an agenda, it will only be a matter of time before the market is again facing accelerated price growth and deteriorating affordability as demand soars and supply struggles to keep pace.

Planning for success.

If you were having a dinner party and you only had eight seats at your table, you wouldn’t invite 12 friends over without bringing up your trusty folding table and chairs from the crawl space. Otherwise, your friends Barry, Ellen, Rocco and Sophia are going to end up eating Pasta Primavera on your brand-new Chesterfield, and we all know Rocco can’t be trusted not to make a mess. Especially with chocolate lava cake coming for dessert. It costs not to plan ahead. 

While immigration plays a vital role in the economy by supporting economic growth, creating job opportunities, and bringing diversity to communities, it also adds significantly to housing demand. As the population continues to grow and global migration patterns persist, it is essential to understand and embrace the positive impacts of immigrants in the broader economy while also planning for the impact on housing. 

Let’s get the table and chairs from the basement. The challenge lies in creating policies and programs that support and welcome immigrants while addressing the consequent pressures on an already stressed housing market. 43,000 new completions annually sounds like a good start. 

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This week, the City of Burnaby launched the “visioning” phase of its new Official Community Plan (OCP), which will guide the long-term vision for Burnaby’s transportation, infrastructure, parks, agriculture, arts, and housing all the way through 2050.

Under British Columbia’s Local Government Act, municipalities in BC are required to have an OCP. Burnaby’s current Official Community Plan was adopted in 1998 and revised in 2014, but the City says that a new updated plan is needed in order to “respond to the current an emerging needs of the community” and “articulate how growth will be shaped and managed.”

One of the biggest topics in Burnaby is housing and urban development, and to surmise what the future of housing in Burnaby will look like, it helps to first understand the past and present.

According to insights compiled by the City, there have been some subtle, but not insignificant, changes when it comes to housing trends in Burnaby.

The biggest shift has arguably been in terms of the kinds of housing found in Burnaby. In 1996, about 42% of all housing in Burnaby were single-family or two-family homes — the most common of all housing types. As of 2021, that number has nearly halved to 22%. Homes in low-rise buildings have also decreased during the same period, but only slightly, from about 28% to 25%.

Meanwhile, all remaining types of housing have increased. Row houses have increased slightly from about 7% to 9%, duplexes have more than doubled from about 7% to 16%, and homes in high-rises have increased from 18% to 29% — the highest of all types of housing, as of 2021.

This data is dated to 2021 but will more than likely continue on this trajectory in the near future, as most of the residential development that’s occurring in Burnaby is taking the form of multi-family buildings, many of which are in high-rises.

Just in the past few months, Burnaby has seen two new master plan proposals in Burnaby Lake Heights and Burnaby Lake Village, which would consist of 12 and 14 buildings, respectively. Both of those are located in the Bainbridge area of Burnaby, but other master plan communities are also taking form in Edmonds and Brentwood, all of which include plans for high-rises.

According to the City, the Metrotown and Brentwood areas have seen the largest increases in housing units by far, and there still remains plenty of projects on the way in those areas, many of which are high-rises.

In terms of the people, Burnaby has seen a shift between homeowners and renters that’s fairly rare not only in British Columbia, but all of Canada. While Canada’s renter population is growing at twice the rate of homeowners, according to Statistics Canada, Burnaby has seen the opposite. In 1996, 45% of households rented compared to 55% of households who owned their homes, but those numbers are 38% and 62% as of 2021.

According to the City, Burnaby had an inventory of 13,850 purpose-built rental units. By 2021, that number had decreased to 11,539. Burnaby has had a reputation for demolishing old rental buildings to make way for newer buildings, many of which were for-sale condominiums rather than apartments for rent.

The average household size in Burnaby has also decreased slightly, from 2.6 people in 1996 to 2.4 people in 2021. That change is attributed to a nearly 5% decrease in households with four or more people, from about 26% to 21%. In that same span, households with one person, two people, or three people all increased by about 1% to 3%.

The total number of homes in Burnaby was 68,750 in 1996 and 101,136 as of 2021, and the City is expecting to hit over 150,000 by 2050.

The development of the Burnaby 2050 Official Community Plan is expected to take multiple years and be completed by Summer 2025. In June, the City will be hosting numerous free events where residents are welcome to learn about and contribute to the development of the plan.

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Despite the pressures of inflation and cost of living, more than half of Metro Vancouver real estate investors say they plan to buy another property in the region, according to a survey for a real estate firm.

The Royal LePage survey, conducted by Leger, found 54 per cent of respondents in Greater Vancouver say they intend to purchase an additional residential investment property within the next five years. Of those, just over half will buy a condo.

In Metro Vancouver, 67 per cent of respondents own one residential investment property, while 29 per cent own two or more, according to the survey.

“The appetite for real estate investment is strong in the Greater Vancouver area. Unlike stocks or other investment types, real estate investing offers the convenience of dual utility — you can live in your home or rent it out as a source of income,” said Adil Dinani, a spokesperson for Royal LePage West Real Estate Services, said in a statement.

“There is a positive association between home ownership and the creation of personal wealth in Vancouver.”

Out of the three major urban centres in Canada, a property’s proximity to a post-secondary institution had the greatest influence on Greater Vancouver investors, at 53 per cent, according to the survey.

While higher borrowing and cost of living pressures have caused some Vancouver investors to rein in spending, many have been able to withstand increased expenses, said Dinani.

“In today’s post-pandemic era, despite higher borrowing costs, I expect more people will enter the investor segment as rates hold and eventually ease. Buyers will be looking for opportunities in the market,” said Dinani.

According to the survey, 28 per cent of investors in Greater Vancouver say that increased interest rates have caused them to consider selling one or more of their investment properties. When asked about their plans for the future, 28 per cent of investors in the region say they are likely to sell one or more of their investment properties within the next two years.

Leger says the online survey of 1,003 adult Canadians, who own one or more residential investment properties, was completed between March 2 and March 17 using Leger’s online panel. The company says no margin of error can be associated with a non-probability sample from a web panel.

The Leger poll comes as another survey Thursday by Co-operators, a Canadian financial services provider, found only 31 per cent of British Columbians aged 18 to 44 are confident in their ability to choose investment opportunities that will make money. In that survey, 40 per cent say that recent stock market fluctuations have made them hesitant to invest.

Earlier this week, Statistics Canada reported that investors made up almost 10 per cent of homeowners in B.C. in 2020.

The figures show B.C.’s share of investor-occupants, who own a single property with several units, including their primary residence, sat at 9.6 per cent that year, much higher than in other provinces.

For example, investor-occupants made up 2.5 per cent of New Brunswick’s homeowners, 1.8 per cent in Nova Scotia, 0.8 per cent in Ontario and 0.7 per cent in Manitoba, while other provinces weren’t part of the study.

StatCan attributed the high numbers of investor-occupants in B.C. to incremental forms of density, such as single-detached houses with secondary suites or laneway units, duplexes or triplexes.

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Metro Vancouver’s board of directors has approved a motion to re-work its budget to ease the rising tax burden for the region’s 2.8 million residents – and saddle real estate developers with much higher costs.

The motion, approved April 19, gives staff a mandate to overhaul its 2024 budget and move toward a plan that would lower Metro fees for single households by more than 16 percent between 2022 and 2026. The plan, however, would also increase development cost charges levied to developers when they build new residential or commercial projects.

Development cost charges (DCCs) are collected from developers and applied to the cost of infrastructure related to growth. DCCs are charged either on a per-square-foot basis or, in residential, as a flat fee per housing unit.

On April 28, the Metro board will decide whether developers, including those building new homes, will cover almost 100 per cent of the ballooning cost of water and sewage, the most expensive infrastructure, as part of Metro's 2024-2028 Financial Plan.

Currently there is an 82.5 per cent development fee on sewage infrastructure costs and Metro's new water infrastructure fee will be 50 per cent of related costs.

The change means ”that 99 per cent of the cost of system expansion is covered by development cost charges rather than water sales to water district members or liquid waste services levies to sewerage and drainage district members,” explained Jennifer Saltman, a communication specialist with Metro Vancouver.

The Metro Vancouver DCC rates would be on top of any municipal charges for new real estate developments.

DCC rates already rising

But development cost charges are already increasing, even nearly doubling this year from a year earlier.

Richmond city council, for example, has raised its DCC rates for a new detached house from $41,885 per lot to $61,138, a 47 per cent increase. The per-square-foot development cost charge on a townhouse is up 42 per cent from a year ago, while DCCs on a new condo apartment rose 43 per cent. The higher rates would add from $32,000 to $34,000 to the end price of a 1,000-square-foot strata unit.

Commercial DCC rates are up as much as 51 per cent. The biggest hike is in major new industrial projects in Richmond, where the DCC per acre has increased 99 per cent to more than $206,000.

Richmond has approved all the increases and needs only provincial approval to bring them online.

Dana Westermark, a Richmond developer, called these DCCs “punishing,” saying they will ultimately be passed on to buyers.

“It affects the end price of all housing,” he told Glacier Media. “(It’s) delusional thinking that, somehow, development will absorb the cost and it won’t get passed on.”

Richmond is not alone in jacking up DCC rates, even as the province is encouraging municipalities to reduce barriers to new residential development.

Some municipalities have not updated their fees in years and the new rates can be steep.

After a 33 per cent increase in 2022, compared to 2018, Coquitlam now charges $60,422 in DCCs for a new detached house, $39,664 per unit for a duplex or fourplex; $35,807 for each new townhouse; and $22,694 for every new apartment.  New commercial rates run from $58 to $101 per square metre (approximately $5.50 to $10 per square foot.) 

The City of Vancouver adjusted its DCC rates last September 30, as it does each year. For a high-density residential project, the DCC rate is $343 per square metre, or about $32,000 for every 1,000 square feet of new housing.

Vancouver’s DCCs for new commercial projects is $24.68 per square foot, with light industrial projects paying $18.51 per square foot, both higher than the annual average per-square-foot lease costs achieved by developers.

Vancouver residential DCC rates are low compared to some suburban markets, but the city also levies community amenity contributions (CACs) that add thousands of dollars to the developer’s cost. CACs, which can be a cash payment or the donation of park space, child-care spaces or other amenities, are also now being charged by some suburban municipalities.

In Port Moody, where DCC rates are from $13 to $14 per square foot for new strata units, Edgar Developments recently paid $30 million for a new road, $2.8 million for public art works and donated 5.1 acres to BC Housing to gain approval for a 2,000-home master-planned development, the first, and largest, in the city in 20 years.

Metro Vancouver’s fee increases come amid rising inflation, ongoing debt obligations and billions of dollars in infrastructure planning across a region housing nearly half of B.C.’s population.

Metro is currently building or upgrading three wastewater treatment plants. The largest of those is the Iona Island Wastewater Treatment Plant, a $10.4 billion, 10-year project designed to meet new regulatory requirements and the needs of a growing population.

Other major capital projects include a massive upgrade to the  regional body’s more than 500 kilometres of water mains — a series of projects meant to keep up with population growth and to have a better chance of providing reliable drinking water in the event of a serious earthquake or severe weather event.

Laudable spending. The question now is who should pay for it all.

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(Bloomberg) — The rapid decline in Canadian home values will come to an end in 2023 as a lack of supply reasserts upward pressure on prices, the country’s housing agency said in its annual forecast.

Prices will start to rise by next year as the pace of new home building fails to keep up with high levels of immigration and a quickening economy, Canada Mortgage & Housing Corp. said in its report. There’s already some evidence a recovery in home prices is underway: In March, the national benchmark rose for the first time in a year.

Canadian home prices posted their worst annual drop on record last year as the Bank of Canada enacted an aggressive campaign of interest rate hikes to combat inflation. The central bank paused those efforts in March and the housing market has begun to show signs of life, but buyers are confronting a marked lack of homes for sale. 

The country’s housing agency predicts the annual average price will end 2023 below last year’s levels, but focused its report on the risk of housing becoming increasingly unaffordable for too many Canadians with the prospect of further price declines and a steep recession receding.

“Affordability will continue to deteriorate through 2023, in both the ownership and rental markets,” Bob Dugan, CMHC’s chief economist, said in a press release. “With demand for housing still well outpacing new housing supply, affordability challenges will persist for owners and renters.”

The agency forecasts Canada’s average annual home price will end 2023 at C$643,325 ($472,581) from C$703,875 last year as the economy risks a “mild recession” as a result of the central bank’s interest rate hikes. However, that will also prompt a sharp drop in the pace of new home construction, exacerbating existing housing shortages in cities like Vancouver and Toronto and contributing to a rebound in prices the following two years, the agency said. 

In Toronto and Vancouver, there are already signs of sales and prices picking up. Those cities may be leading a recovery process, which should see prices bottom nationally between April and June, before beginning to rise again in the second part of the year, Dugan said on a conference call with reporters.

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On Monday, the Government of Canada announced a series of amendments to the foreign buyer ban — officially called the Prohibition on the Purchase of Residential Property by Non-Canadians Act — to expand the exceptions to the regulations, some of which have become an unintended thorn in the sides of developers across the country.

The four amendments to the foreign buyer ban are effective immediately, as of March 27, 2023, and are as follows.

The Foreign Control Threshold is Now 10%

While the foreign buyer ban was originally created with individual Canadians and the resale market in mind, a less-discussed aspect of the ban was its effect on the development industry, particularly with the legislation deeming an entity as foreign if non-Canadians owned 3% or more of it.

In the short months since the ban came into effect on January 1, this 3% has been repeatedly cited by developers as overly-restrictive, specifically for real estate investment trusts (REITs). With the amendment, the maximum amount of non-Canadian control in a REIT subject to the foreign buyer ban is now 10%.

Purchasing for the Purpose of Development

Perhaps even more of a relief is the new exception that allows non-Canadians to purchase residential property, if the purpose is development. Previously, this exception was only applicable to publicly-traded corporations.

According to a CMHC FAQ, “development” does not include “the mere purpose of leasing or renting the property out to tenants or otherwise managing it as a rental property as part of its portfolio.” Repairs, renovations, and remodeling also do not count as “development,” but the CMHC notes that some expansions or remodels that are “tantamount to the construction of a new building or a change of use” — such as one that would create a new residential property — do, and will now be allowed.

The Ban No Longer Applies to Vacant Land

Under the previous regulations, vacant land zoned for residential use or mixed-use with residential could not be purchased by non-Canadians.

The Government of Canada is now repealing that restriction — Section 3(2) — and with the change, non-Canadians can now purchase vacant land zoned for residential use and use it for any purpose.

The Ban No Longer Applies to Work Permit Holders

A common criticism of the foreign buyer ban has been that it seemingly contradicts the federal government’s lofty immigration goals, or even gives the appearance of xenophobia, by limiting the ability of those who may be looking to settle down in Canada from buying homes.

Now, those who hold a work permit or are authorized to work in Canada are allowed to purchase residential property, so long as they have 183 days of validity, or more, remaining on their permit, and have not purchased more than one residential property.

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OTTAWA - The annual inflation rate slowed more than expected in January, suggesting the Bank of Canada is likely content with its decision to pause rate hikes as price pressures continue to ease.

In its consumer price index report released Tuesday, Statistics Canada said the deceleration in headline inflation to 5.9 per cent in January from 6.3 per cent in December reflects a base-year effect.

A base-year effect refers to the impact of price movements from a year ago on the calculation of the year-over-year inflation rate.

Given much of the acceleration in price growth happened in the first half of 2022 as the threat of Russia invading Ukraine turned into a reality, the federal agency said the annual inflation rate will continue to slow in the coming months.

The last time Canada's annual inflation rate was below six per cent was in February 2022 when it was 5.7 per cent.

The headline rate came in lower in January than many commercial banks were anticipating in their forecasts, signalling good news for the Bank of Canada.

Last month, the Bank of Canada hiked its key interest rate for the eighth consecutive time since March 2022, bringing it from near zero to 4.5 per cent. That's the highest it's been since 2007. At the time, the central bank said it would take a “conditional” pause to assess the effects of higher interest rates on the economy.

In an interview, BMO chief economist Douglas Porter said the positive surprise in Tuesday's report was “very welcome,” but noted some of the decline in headline inflation had to do with one-off events. For example, prices for cellular services were down because of extended Boxing Day sales.

“On balance, this slightly takes the pressure off of the Bank of Canada,” Porter said, adding that another hike at the central bank's next rate decision on March 8 is most likely off the table.

On a monthly basis, higher gasoline prices in January drove the overall price level higher compared with December. The federal agency said the consumer price index rose 0.5 per cent in January after declining by 0.6 per cent a month prior.

According to its most updated forecast, the Bank of Canada anticipates the annual inflation rate to fall to about three per cent by mid-year. A return to its two per cent target is expected in 2024.

So long as the economy and inflation evolve in line with the Bank of Canada's forecasts, the central bank estimates it won't need to raise rates further.

Though Canadians will start seeing the headline rate fall more noticeably in the coming months - barring unexpected global events - economists have noticed price pressures easing for months now.

According to BMO, the three-month annualized inflation rate is hovering at about 2.4 per cent, suggesting inflation is headed toward target.

But from an affordability standpoint, RBC economist Claire Fan said “the pain is still there,” given higher prices are already baked into the economy.

“It's really hard to wrap our heads around the idea that lower inflation doesn't equal outright deflation,” Fan said.

Though headline inflation is inching closer to target, Canadians saw no slowdown in the cost of groceries last month as prices rose faster on a year-over-year basis.

Grocery prices were up 11.4 per cent compared with a year ago, marking an acceleration from 11 per cent in December. The federal agency said prices for meat, bakery goods, and vegetables all rose faster.

Porter said the food inflation was the “one piece of bad news” in the January inflation report.

The chief economist stressed that soaring grocery prices is a global phenomenon, noting it is “not a Canadian story alone.”

Some factors playing into this, he said, include avian flu affecting poultry products and the war in Ukraine affecting vegetable oil and grain prices.

Fan said although Canadians have yet to see grocery prices ease, lower commodity prices will eventually feed through the supply chain to retail prices.

“It's just taken a bit longer than many had expected.”

This report by The Canadian Press was first published Feb. 21, 2023.

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