Money123: Strike season heats up, inflation cools

Inflation is cooling, rate cut bets are heating up

Another month of inflation data, another notch in favour of more interest rate cuts from the Bank of Canada.

That was the message from many economists reacting to the annual rate of inflation cooling to 2.5 per cent in July, with Statistics Canada reporting that shelter and food inflation cooled while prices outright declined for passenger vehicles and some travel expenses.

In addition to the headline figure dropping, July also marked further easing in the Bank of Canada’s preferred measures of core inflation.

RBC economist Claire Fan said in a note that the latest price data is “unequivocally weak,” and should quell concerns about “sticky inflation pressures” in Canada.

It’s been quite a turnaround since earlier in the summer when the central bank’s easing cycle begin, with bets for a rate cut at every upcoming meeting now widely held among economists.

While most economists are expecting another interest rate cut at the Bank of Canada’s next decision in September, others are warning that some inflation progress could be at risk as uncertainty swirls around the national rail shutdown.

Here are three stories if you want to know about where inflation, interest rates and the economy could be headed next.

Air Canada pilots could be next for the picket lines

Air Canada pilots could be on the picket lines as early as mid-September if the country’s largest airline isn’t able to reach a deal with the union before then.

The Air Line Pilots Association (ALPA) announced Thursday that pilots from Air Canada had voted overwhelmingly in favour of a strike mandate as bargaining for a new deal stretches on.

The two parties are currently in a period of federal conciliation set to end on Monday, at which point they’ll begin a 21-day cooling-off period.

Air Canada’s former COO Duncan Dee told Global News that those three weeks tend to see the most tenacious negotiations take place.

“I think that the million-dollar question is whether Air Canada can meet the demands and the expectations of its pilots and whether pilots are willing to, in effect, shut the company down over their wage demands,” he says.

Read more on what Air Canada pilots are fighting for, and what experts are saying travellers should know about the odds of flight disruptions this fall.

Doorbells over wedding bells

Canadian youth are putting homeownership ahead of marriage and travel plans amid the current affordability woes, new polling released this week suggests.

The survey commissioned by RBC’s homebuying platform Houseful show homeownership remains an aspiration despite affordability barriers boxing out many of the youngest generation.

And for 40 per cent of first-time buyers under 30 years old, owning a home is seen as a critical part of their five-year plan. That outranks buying a car (33 per cent), travel (30 per cent) and getting married (24 per cent).

The good news is that housing affordability improved somewhat nationally in the second quarter of the year as borrowing costs fell more than home prices appreciated, according to National Bank of Canada.

That marked the second consecutive quarter of improving conditions for homeowners, but economists noted that overall affordability is still hampered by relatively high mortgage costs.

Read more about how Canadian youth are making a run at the housing market despite fears that ownership might be “unattainable.”

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– THE QUESTION –

“I’m trying to make sense of the management fees my bank is offering on mutual funds. The management expense ratio I’m being charged is 1.99%. Does that mean that my bank gets 1.99% of any returns I make in a year? What happens if the returns are negative, like if I lose money overall in a year? When do those fees come out, or are they taken off the top? Appreciate any help breaking this down, I’m just not sure how much of my money I’m losing here.”

— A Money123 reader

“Investment fees can be confusing. But they are an important consideration for investors.

A mutual fund management expense ratio (MER) is the annual fee as a percentage of the fund’s value that is charged to the investor. The fees are paid from the investor’s return, but the 1.99 per cent in this case is the fee for the entire account value, not just charged on the return it earns. So, for every $100 you have invested, $1.99 is expected to be paid as annual fees. This applies whether the fund makes money or loses money. So, your fund would need to earn at least a two per cent return to break even ever year.

A fee of two per cent is pretty common for mutual funds in Canada. For a more conservative fund, if you pay two per cent, that can make it hard to come out ahead net of fees.

Unlike other things that you may pay more for in life, higher cost investments are less likely to be better quality investments. There are lower cost mutual funds out there though, so you cannot paint all mutual funds with the same brush.

If you are a self-directed investor, passive index mutual funds or exchange traded funds (ETFs) may be better choices with lower fees and possibly higher returns after expenses. If you work with an investment advisor, your fees may range from 0.75 per cent all-in for a robo-advisor with little advice to 1.5 per cent for a full-service advisor. Fees tend to decline when you have more to invest.”

– Jason Heath, managing director, Objective Financial Partners

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