In June, inflation in the USA declined by 0.1% to 3%, marking the lowest rate in 12 months and a significant drop from the 9.1% peak two years prior. Despite this improvement, Federal Reserve Chair Jerome Powell emphasized that inflation remains a concern and further positive data is necessary to justify rate cuts. The next Fed announcement is scheduled for July 31, with markets predicting potential rate cuts starting in September.

In Canada, inflation was slightly higher than expected last month at 2.9%, compared to the forecasted 2.6%. This discrepancy is largely attributed to a recent change in the composition of the CPI basket by Statistics Canada. Mortgage interest continues to contribute significantly to the inflation rate, accounting for 1.3% of the total 2.9%. With the rate cut cycle ongoing and the weight adjustments in the CPI basket, the upcoming announcement on July 24 could yield surprising results. Markets are currently anticipating rate cuts in September.

A new report from the Bank of Canada (BoC) indicates that the overnight rate has risen higher than expected due to misjudged transitory inflation and liquidity issues stemming from government borrowing. This has led to an increase in mortgage payments, which has reduced borrowers' overall consumption by 3% since 2022, with a forecasted increase to 5% by 2027. Mortgage payments have risen by an average of 9% since 2022 and are expected to double to 17% by 2027. This shift diverts funds from consumption to debt servicing. Personal accounts suggest these figures might be underestimations, with some experiencing over 60% increase in mortgage payments, heavily weighted towards interest.

Canada's employment situation is deteriorating, with a loss of 1,000 jobs in June, falling short of the expected 25,000 gain. This has pushed the unemployment rate to 6.4%, a 1.6% increase from post-pandemic lows, and the highest in seven years excluding the pandemic spike. The construction industry is getting hammered, with a 3% decline over three months. 99% of new jobs created in the past quarter have been part-time, and the employment rate has dropped to 61%, the lowest in over 20 years. Job vacancies have decreased significantly from 1 million in 2022 to 575,000, driven by rising business delinquencies, now at 1.5%.

Toronto's real estate market saw a 4.5% increase in home sales in June, but this still represents the lowest June sales in 24 years, with a 16% year-over-year decline and a 28% drop for condos. Despite expectations that rate cuts would rejuvenate the market, inventory levels have surged, up 67% year-over-year and 84% for condos, reaching a 14-year high. The market is flooded with new units, leading to falling condo prices. The monthly condo cash flow index has improved since late 2023 but remains negative, with average condos running a $1,000 monthly deficit.

Vancouver's active inventory surpassed 15,000 listings for the first time in five years, with expectations of reaching a 10-year high soon. Detached homes are leading this increase in inventory, despite record-low single-family home starts over the past 35 years. The condo segment is expected to see a spike in listings in the coming months due to new regulations affecting investment properties.

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