Money123: Forecasting food inflation, demand for upsizing homes, cottage prospects

The outlook for food inflation

Monthly inflation prints are beginning to fall into a bit of a pattern: overall price pressures are easing from the substantial highs seen a year ago, but there’s still little relief at the grocery store.

The story was no different in June, Statistics Canada informed us this week, as despite the annual inflation rate dropping into the Bank of Canada’s one-to-three per cent target range, the cost of groceries rose 9.1 per cent year over year.

Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University, told Global News that droughts are affecting cow herds in the west of Canada and in the United States, pushing up prices for beef.

“Climate change is costing Canadians every single day, whether you like it or not,” he said.

In addition to severe weather impacts, Charlebois said Russia’s decision to allow the collapse of the Black Sea grain deal — a critical agreement for maintaining the flow of goods from Ukraine — is adding another ounce of uncertainty to the food inflation pot as globally set prices for commodities like wheat are taking a hit.

Read more on what the end of the deal could mean for prices at the grocery store for Canadians.

Canadian homeowners moving on up

A brief pause in interest rate hikes in the first half of 2023 saw many homebuyers take the opportunity to upsize their homes, according to a new report from Re/Max Canada.

Despite the erosion in home values over much of the past year, Re/Max found that in each of the nine large markets it tracked, homeowners on average saw sizable jumps in equity over the past five years.

That’s given sellers in 2023 a chance to upsize their homes, especially among those who had held off making a move during the housing correction.

Re/Max Canada president Chris Alexander said that how much home you can afford while upsizing depends on interest rate levels, how much money you’re making and how much debt you might owe, as well as how much equity you’ve built up in your property.

But it’s hard to line up market timing and the needs of a growing family, he told Global News.

“It’s really all about your life situation. And sometimes you can’t wait,” Alexander said.

Read more on which markets are prime for moving on up.

Cottage market prices dropping

If instead of a larger home you’re eyeing a cottage property for your next purchase, there might be some openings in the market, according to real estate experts.

Mark Pedlar, a broker with Re/Max Bluewater Realty Inc. in Ontario’s Grand Bend area, said he’s seeing a “softening of the market,” with a 10 per cent decrease in average price for that region.

“There’s still good value for the sellers, but even better value for buyers looking for a deal that they might have missed out on last year,” he said.

But rising interest rates means the mortgage payments on cottage properties are starting to bite. Buying a cottage and turning it into a source of rental income is one way to make the property more affordable, Pedlar noted.

If you’re wishing you had a lakefront home to escape to this summer, read more tips you should know before jumping headfirst into the cottage market.

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– THE QUESTION –

“I have two investments in mutual funds: About $100,000 in a tax-free savings account and $150,000 in a mutual fund. I am thinking of taking the larger investment and putting it into a GIC as the rates are quite good now. The market has been doing nothing for several years and I feel like the coming year might be a bit too volatile for me. I am in my late 60s and think some stability is a good idea. Your thoughts?”

— A Money123 reader 

“The key factors for this question are comfort with risk and time horizon, which is linked to someone’s age. It appears that the appetite for risk and the time horizon are both getting smaller, which lends itself to the idea of reducing risk.

The confirmation test would be if someone is losing sleep over their mutual fund investment. If this is the case, then the risk is too high for this person. Purchasing a GIC is a good idea from these aspects.

The consequences to consider are how long the rates of return will continue, whether inflation will persist, and in some cases the liquidity of the investment.

If inflation continues to be high, GIC returns will not perform as well as equities, and you may end up with capital erosion. Interest rates are supposed to mirror inflation plus a premium over time, but this is not a guarantee.

If you need money on short notice, GICs tend to be locked in to achieve the best rates, which may cause a liquidity problem. If you want liquid GICs, they do exist, but rates would be lower.”

–  Joe Barbieri, financial consultant, Joe the Investor

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