Money123: Inflation ticks higher ahead of next week’s rate decision

What higher inflation means for the Bank of Canada

There was some “unsettling news” in Statistics Canada’s December inflation report this week: the annual rate of inflation ticked up to 3.4 per cent to end the year.

Gas prices, while still falling, didn’t fall as much as they did this time last year, so that pushed the inflation rate up. Inflation at the grocery store, meanwhile, was steady, and Canadians were paying over 30 per cent more annually on airfare over the holidays.

While inflation has cooled significantly from the highs of summer 2022, economists said this week that the so-called “last mile of inflation” is proving the hardest.

Surveys released from the Bank of Canada this week, meanwhile, suggested that many businesses are not planning as large or frequent price hikes for 2024 as in recent years.

The central bank will be weighing the sticky inflation figures as well as its surveys of businesses and consumers heading into next week’s interest rate decision on Jan. 24.

Read more here about what to expect on Wednesday, as well as how the timeline for rate cuts might play out.

Using your TFSA less?

If you’ve been forgoing savings and investments amid the rising cost of living, you’re not alone.

Canadians are contributing less to their tax-free savings accounts (TFSA) lately, according to a new survey by BMO.

The survey conducted in early November found that fewer Canadians were using TFSAs in 2023 compared with 2022, at 62 per cent compared with 66 per cent. The average balance of those using TFSAs did rise, though, going up nine per cent to $41,510 in 2023, according to BMO.

Paying off debt was found to be the primary reason 24 per cent of Canadians surveyed said they are not investing this year, with millennials considered the generation most focused on paying off debt rather than investing.

“Household debt is historically high, inflation has lifted day-to-day cost pressures, and high interest rates make paying down debt a compelling option that might be crowding out some new investment,” BMO economist Robert Kavcic said.

Despite the investment downturns, Kavcic said there was room for optimism with rate cuts in the forecast.

Read more on BMO’s TFSA survey.

An ‘unexpected surge’ in the housing market

Not every home buyer or seller opted for hibernation in the final month of 2023.

Home sales saw an “unexpected surge” in December as sellers and buyers came together to get deals done before the new year, according to the Canadian Real Estate Association.

In addition to unseasonably warm weather bringing Canadians out of their dens and into the housing market, experts pointed to cheaper borrowing costs tied to declines in bond yields as stimulating a bit of activity in December.

But real estate market watchers were divided on whether the hot December marked a one-time bump or the early start of the typically busy spring season.

Read more about what to expect for the housing market in early 2024, and in which direction home prices are heading in different provinces.

________________________

– THE QUESTION –

“My bank is offering me a pre-approved line of credit, but I’m already pretty particular about sticking to my credit card and getting it all paid off at the end of the month. I’m not sure I’d use or need a line of credit, but is there any reason to say no to one? Does having one help with your credit score, or would having it and not using it be negative somehow? Is there any benefit to using it over my credit card for slightly bigger purchases?”

— A Money123 reader 

“Saying yes to a pre-approved line of credit, even if you don’t need it, is a solid strategy. That’s because if you ever need a line of credit in the future, there’s no guarantee that you’ll be approved at that time. You’re essentially future-proofing yourself now by accepting the offer.

Having a line of credit could help with your credit score as it’s a different type of credit, but the credit bureaus use various factors when determining your score. Unlike credit cards, where you get an interest-free grace period, a line of credit charges you interest as soon as you borrow from it. In other words, don’t use it unless it’s an emergency.”

–  Barry Choi, Money We Have

__________________