CTV.ca News Staff

Canada’s annual inflation rate dropped to 1.4 per cent in May from 1.8 per cent in April, mainly due to a moderation in gas prices and the falling price of clothing.

The latest Statistics Canada inflation report released Tuesday also shows core inflation fell to 1.8 per cent from 1.9 per cent the previous month — well below the Bank of Canada’s two per cent target.

Core inflation, which excludes volatile markets such as energy, is considered the bank’s key yardstick in determining whether inflation is at acceptable levels.

The bank raised the policy rate for the first time in two years on June 1, and some economists suspect it will continue along that path next month at the meeting of governors.

But the May inflation numbers contain little that would worry bank governors or indicate runaway prices.

Overall, Canadians paid 0.3 per cent more for goods in May compared month-to-month with April.

Meanwhile, gasoline prices appear to exercise less of an influence on inflation after largely governing the rate over the past two years.

The report shows pump prices 6.2 per cent higher than a year ago – a much milder increase than the 16.3 per cent rise noted the month before. In fact, gasoline actually cost 0.5 per cent less in May when measured month-to-month with April.

Six of the key indicators monitored by Statistics Canada registered price increases.

Food prices, one of the most significant elements in the index, inched up 0.8 per cent, the smallest increase since March 2008.

Transportation costs, which are tied to gasoline prices, rose 4.1 per cent. At the same time, shelter costs rose 1.3 per cent, as a 5.4 per cent drop in mortgage interest costs counterbalanced a 4.4 per cent jump in the cost of homes.

Prices for clothing and footwear declined 1.3 per cent from last year.

All provinces experienced a rise in inflation in May, but one that proved less dramatic than in the previous month, according to the report. Ontario had the highest rate at 1.9 per cent, while Manitoba showed the lowest at 0.5 per cent.

With files from The Canadian Press

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St. John’s — The Canadian Press

Canada must shift its trade focus towards emerging economies, which account for two-thirds of global growth and are key drivers of the worldwide economic recovery, says Bank of Canada Governor Mark Carney.

Canada’s central bank head said Friday that countries such as China, India and Brazil are becoming growing centres of economic power and have a big impact on the price of oil, metals and other commodities, drivers of Canada’s resources economy.

“The relatively slow recovery expected in our most important trading partner, along with ongoing sectoral adjustments, means that Canadian firms have to find new markets,” Mr. Carney said in a prepared speech Friday to a Newfoundland energy conference.

“The global economy is increasingly multi-polar,” he added. “Emerging-market economies currently account for about two-thirds of global growth. They represent almost one-half of the growth in imports over the past decade, particularly of capital goods. They are the main drivers of commodity prices and are therefore important determinants of our terms of trade.

“More fundamentally, they are increasingly thought to be leaders and innovators in public policy and business. Canada needs to become fully engaged with these emerging centres of economic power.”

Canada’s trade with China, India and other parts of Asia has grown in recent years, mainly in grains, fertilizers, coal and other commodities. Chinese companies have also made major investments in Canada’s oil sands and mining sector in a bid to secure future supplies of energy and key industrial metals such as copper and zinc.

In his speech to the Newfoundland and Labrador Oil and Gas Industries Association, Mr. Carney also predicted the global recovery will not be smooth. And in the absence of other demand growth and exchange rate changes, there could be a shortfall of up to $7-trillion in worldwide GDP by 2015.

“The global economic recovery is proceeding, but it is increasingly uneven across countries. There is strong momentum in emerging-market economies; some consolidation of the recoveries in the United States, Japan, and other industrialized economies; and the possibility of renewed weakness in Europe.”

Mr. Carney also said global growth ahead will be more commodity intensive because emerging-market economies’ share of global growth is now two-thirds, rather than the one-half it was a decade ago. In a spring forecast, the Bank of Canada projected an additional 30-per-cent increase in the prices of non-energy commodities over the next few years.

That’s good news for Canadian resources companies, he said, but there are still major challenges ahead for corporate Canada, including a need to grow productivity and technology investments to become more competitive in the global market.

“The imperatives for Canadian businesses appear clear,” Mr. Carney said. “New suppliers need to be sourced; new markets opened; a new approach to managing for a more volatile environment developed

Wal-Mart Canada issues rewards-based MasterCard

First of several financial services products Barbara Shecter, Financial Post · Tuesday, Jun. 15, 2010

Freshly-minted Walmart Canada Bank kicked off its foray into financial services with a rewards MasterCard credit card on Tuesday, but the low-price retailing giant is not ruling out bringing serious competition to the country’s handful of big banks through products and services such as loans and mortgages.

“Walmart will always look to save customers more so they can live better. That’s our mission,” said Trudy Fahie, chief executive of Walmart Bank Canada. “The bank offering will be no different than our retail offering.”

This month, Walmart won final approval from Canada’s banking regulator to open a full financial services business in Canada, something the successful retailer failed to accomplish in the United States amid fierce industry backlash.

In Canada, consumer groups have pushed for more competition in the banking sector, arguing that services charges and other costs are higher because the landscape is dominated by the country’s six big banks.
Read more: http://www.financialpost.com/news/Walmart+begins+Canadian+banking+push/3156480/story.html#ixzz0r13I2hFo
 

The subprime crisis developed into euro crisis

Paul Vieira, Financial Post ·     Angel Gurria is never short of words, or emotion. The secretary-general of the Organization for Economic Co-operation and Development will talk about almost anything economic-related, and do it with a passion that’s to be expected from a native of Mexico. Mr. Gurria, a former finance and foreign affairs minister in Mexico, has been head of the Paris think-tank since 2006, and has tried to provide a voice of reason during the economic crisis. In its most recent outlook, the OECD said developed economies should begin the process of budget-cutting and get debt levels back to more reasonable levels. And in Montreal this past week for the International Economic Forum of the Americas, the multi-lingual Mr. Gurria warned economies have a tough dilemma ahead: They have to maintain fiscal policies that lead to job creation, while at the same time get their own fiscal houses in order. Mr. Gurria talked to the Financial Post’s Paul Vieira in Montreal. This is an edited version of the interview:

Q Is the euro crisis the beginning of new woes, or did the crisis that broke in 2008 really end?

A You are absolutely correct. The euro crisis is just a different phase of the crisis. And just like the first manifestation of the crisis, this deals with overleverage. First it was overleverage of the banks and the stabilization of the financial system, plus the drop in government revenues due to recession, plus the increase in automatic stabilizers, plus stimulus spending. All this produced these exorbitant deficits and this mind-boggling accumulation of debt, which we would have just laughed at a few years ago of ever happening. The euro crisis is the same problem of overleverage, but has moved from the private sector to the public sector. This is just unsustainable and has to be fixed.

Q Any surprise by the drubbing in the markets, due mostly to Europe? And any shock at how intense it has been in such a short time?

A I think at some point in time, governments took the first decision to do whatever it takes. No more failures of banks. That has consequences. The second decision was to say, “We will go out and stimulate.” That was a deliberate, co-ordinated, co-operative type of decision, and something which we are seeing the consequences of now.

The first decision was linked to stabilizing the financial system. The second decision was a little bit different because, objectively, everyone went into some kind of stimulus, with China doing 15% of GDP, and the United States did something like 6%. The difference was the degree of response that the economies had. And then there was the result of the economy. And that’s when revenue drops, and you have to spend automatically [on unemployment benefits]. That was not planned. It is the result of a general economic situation. Countries were having enough trouble just with that, on top of digging into their pockets and going into deliberate deficit spending. And now we see the consequences.

Q The US$1-trillion rescue package from European policymakers was meant to calm markets and support the euro, but that has yet to materialize. What happened?

A It is going to. It was only on [Monday] night that European policymakers got it together in term of finalizing the conditions. The proposal has been going through legislatures. Germany got its passed two weeks ago, but some of the other countries have been circling the wagons because their parliaments were reticent. But let’s assume everyone chips in, and they are in. Then that’s done. Once the money is in place and ready to be triggered, it is going to produce a lot more peace of mind than it has right now.

There were a lot of skeptical voices out there because they did not see the package gelling. What they don’t understand is the way Europe works, or how things happen. They happen slowly, there’s always a little bumpiness, but it happens. And there was enough resolve. This is sorting itself out.

Q What topic, or topics, is going to dominate the G20 leaders summit in Toronto?

A In 2008, the G20 was focused on stabilizing the financial system, and avoiding a cataclysmic disaster. In 2009, it was about growth. This meeting in Toronto is going to be about a more balanced, more nuanced, more complex formula for growth. The balance has to do with the situation where you need to put an emphasis on growth but also on fiscal consolidation, or deficit adjustment. That balance, and the need to be looking at both sides, will be much more apparent now.

There is also a need for countries not to withdraw the stimulus just yet. The monetary tightening is something that is going to happen by next year. Countries have to roll out all the stimulus packages –some of them are finished, but some of them are still happening. So don’t interrupt until you are through with them. Finish the plan. And don’t start cutting the budget just yet, maybe start in 2011. Leaders need to, at the very least, strongly signal how they are going to address the deficit and debt issues. How are they are going to bring down the deficit to a manageable level, but ensure a soft landing. Then the ultimate issue is, whether markets will be more or less tolerant and patient

Maybe your mortgage needs a check-up Andy Holloway, Financial Post · 

While about 80% of Canadians visit a doctor at least once a year to help ensure they remain physically healthy, the number of people who check their financial health by regularly reviewing their mortgage is far less.

Plenty can change in someone’s life in a year, never mind during the standard five-year mortgage a lot of Canadians sign up for. A career change, kids, retirement or newfound money or it could be that such a major event is on the horizon. All can affect the type of mortgage that fits just right.

“A lot of people don’t like to face up to it but, doing an annual financial check-up is a very smart thing to do,” says Peter Aceto, CEO and president of Toronto-based ING Direct Canada. “Managing your financial lifestyle is just as important as managing your diet and exercise.”

Aceto says people often just wait for a renewal letter before they look at their mortgage, and even then they’ll likely send the contract back without considering if it is meeting their current needs because they feel changing providers or the terms is futile. But they should put just as much thought into a renewal or a review as they did when they signed the initial deal.

Kelvin Mangaroo, founder of RateSupermarket.ca, which compares mortgage rates and brokers across the country, agrees. “Canadian consumers tend to become complacent about their mortgage payments and they could be saving a lot of money.” He says home owners should annually review three main things: their current and expected future risk profile and net income as well as rates.

For example, the more adverse you become to risk, the less likely a variable mortgage will be right for you. Aside from comparing rates, Ratesupermarket.ca has a few other online tools that can help consumers figure if a change is a good thing, such as a mortgage calculator and a mortgage penalty calculator that will show how much you can expect to pay to break your existing mortgage. You can also sign up for e-mail alerts that tell you when rates change.

Rates are an obvious thing to pay attention to. If they’re going up, make sure you can make the higher monthly payment that may come at renewal time, or lock into a fixed rate if you’re on a variable. If rates are dropping below your existing rate, you might want to refinance or renew early.

“You’re making a commitment to be mortgage free in 25 years so you should have a longer term view of what interest rates will look like over that period, says Aceto. “Make sure you’re comfortable with them and comfortable making those payments.”

Even though banks are in the business of getting as much interest from you as they can, many will allow people to pay a lump sum of the principal on the mortgage’s anniversary and increase their monthly payments. An extra $100 a month on a standard $200,000 mortgage could save almost $18,000 in interest and shorten the amortization period by about four years, according to Aceto.

Paying down your mortgage faster may seemingly put a crimp into your future finances if something happens and you need the money — unlike, say, putting it into a tax-free savings account or other low-risk liquid investment. But many financial institutions have a re-advance clause that allows you to retrieve some of the money spent accelerating mortgage payments, says Peter Veselinovich, vice-president of banking and mortgage operations at Winnipeg-based Investors Group.

Of course, it may become more difficult to get those funds back if there is a dramatic downward change in housing values and you haven’t built up enough equity. But that’s where understanding your entire financial situation, not just your mortgage, can help. “Most of us don’t like to think about debt, says Veselinovich. “It’s just something that somehow comes up and ends up as part of our personal balance sheet and we make payments.”

Even something simple such as making renovations could affect the type of mortgage desired. For example, topping up or refinancing an existing mortgage can pay for renovations, providing you’re comfortable with a blended interest rate. If you’re buying a new home, you may be able to port your current mortgage. Or maybe you just want to consolidate higher-interest unsecured debt into your mortgage. “Rolling that into your mortgage can significantly save on interest costs and that will help you get out of debt sooner,” says Feisal Panjwani, a Surrey, B.C.-based broker with Feisal & Associates under the Invis Inc. umbrella.

A mortgage can also help you become more tax efficient if you’re thinking of investing in a business, buying a rental property or putting some money into mutual funds or the stock market. That’s because the interest paid on money borrowed on a principal property can be written off against revenue from those investments.

But the biggest reason for making changes to your mortgage mid-stream may be because it could be a lot easier to do something before your situation changes. “Making changes to your mortgage before you go into a new venture or before you retire would allow you to qualify much easier rather than waiting for your mortgage to come up for renewal,” says Panjwani.

The new face of debt

Andrew Allentuck, Financial Post · Friday, Jun. 11, 2010

For James Kennedy, a federal civil servant before he retired, and his wife, Jane, who retired from the Calgary civil service, the golden years have become a series of tough compromises. Both 59, they live in Qualicum Beach, B.C., a five-minute walk from the Strait of Georgia on Vancouver Island. They enjoy the mild weather, long walks on the beach and their beautiful home.

Trouble is, a lack of employment income combined with debt stalk the good times they thought they would have after they left their careers.

Their jobs paid them a total of about $100,000 per year. Today, as a result of too much house and the repairs it entails — repainting, new floors, new electrical circuits, new kitchen counters, custom French doors and other elegances — they carry a debt of almost $70,000, nearly twice their retirement income of $37,000 a year.

If they pay off the debt, James and Jane would face a cash shortage. They could do it, but it would wipe out all of their RRSPs and other retirement assets built up over their working lives. A tough choice.

“We used to think that our house would go up enough in price to cover our debts,” Mr. Kennedy explains. “But I don’t think you can rely on that.”

Their situation could be resolved by selling the house, yet they fear that having paid too much in renovations, even downsizing might leave them house broke — with a nice abode and nothing else.

“As I approach the age of 60, I don’t want to carry so much debt. There has to be an end to the debt. I want my mind to be clear that when we get our Canada Pension Plan and Old Age Security, we will be able to keep those benefits. We don’t want to go into our sunset years paying off our debts.”

See The Kennedys are not alone. A flurry of recent studies show a significant increase of retirees in debt. First was Investors Group, which said 62% plan to carry debt such as a mortgage into their golden years. Then Royal Bank of Canada came out with its Ipsos Reid poll, which found four in 10 Canadians retired with some form of debt, and one in four began retirement with a mortgage on their primary residence.

“More and more, Canadians are carrying debt into retirement,” said Lee Anne Davies, head of retirement strategies at RBC.

Just this week, BMO Financial Group noted less than half of Canadians 55 and over have a post-retirement income strategy in place and only a third have considered that they might outlive their savings.

It’s a new and dangerous trend.

Unlike their parents and grandparents, who remembered the Great Depression and regarded debt as a first step toward ruin, today’s retirees, especially Baby Boomers born between 1947 and 1966, grew up comfortable with owing others. Indeed, for many who grew up in the expansionary years of the 1960s, it was a normal and expected to have a credit card, fund a university education with loans, graduate to readily available mortgages and then to handy lines of credit from accommodative banks.

“Retirees, especially Boomers, are less averse to debt than their parents were,” says Peter Drake, vice president for retirement and economic research with Fidelity in Toronto. The contrast with earlier generations is stark, Mr. Drake adds. “They lived through a sustained period of strong economic growth and have adopted the idea that they will be well-off.”

Boomers have always had a major influence on consumer trends, and now they are changing the face of retirement as well.

“Boomers don’t have the same sense of saving for bad days that their parents had,” explains Charles Mossman, a finance professor at the Asper School of Business at the University of Manitoba. “When they retire, former workers, especially those who don’t have defined-benefit pensions that provide a guaranteed and sometimes even an indexed cash flow, wind up with more debt service charges than they can afford.”

According to a special report by The Office of the Superintendent of Bankruptcy that was released in 2008, 15.3% of all individual bankruptcies in Canada in 2003 were of individuals 55 and over, up from 6.9% in 1993. “Those over 65 are less likely to be able to recover economically and socially from the bankruptcy,” noted the OSB.

The risk of senior bankruptcy grows with age. A study for the Canadian Institute of Actuaries released June 2007, shows that longevity risk — the chance of living to a very ripe old age — poses the problem of running out of personal savings.

Given Canadians’ extending life expectancy — currently 78 for males, 83 for females — a person retiring at age 55 has a 40% chance of running out of personal savings by age 85 and a 90% chance of being flat broke by age 95. It should be noted the data shows that women, who outlive men on average and tend to have lower lifetime incomes, have even greater reason to fear poverty caused by longevity.

Compounding the longevity problem is the trend, promoted by some financial services companies, to early retirement. Remember Freedom 55? But retiring at that age means giving up what may be one’s most financially productive years. Indeed, if the average retiree has paid down most of his or her debts, and delays retirement to age 62, he or she can live in reasonable financial security, says demographer David Foot, an economist on the faculty of the University of Toronto and author of the 1996 bestseller Boom, Bust & Echo.

It would be wrong to label all debt foolish and all debtors in peril of financial catastrophe, argues Tina DiVito, head of retirement solutions at BMO Financial Group. “There is bad debt and good debt. Bad debt may be what one borrowed for a transitory pleasure, such as a vacation, after which the borrower has to pay high interest rates and gets no tax breaks.

“Good debt bears moderate rates of interest and is payable in a reasonable time period, perhaps as a part of an investment that makes interest tax-deductible,” Ms. DiVito says.

For good debt, consider the case of 61-year-old Montreal retiree Ioanna Jakus, who has maintained a mid-six figure investment portfolio while living on an after-tax income of less than $2,000 per month.

A former bank employee, she has a $10,000 line of credit with her stock broker. “I use the line to buy stocks and bonds,” she says. “I can deduct the interest I pay from my taxable income. My investments have been successful and have more than paid the cost of credit. What’s more, rates of interest are so low that borrowing to invest just makes sense for me.”

Not only has Ms. Jakus made intelligent use of credit, she has done so expertly, selecting low-risk GICs, bonds and blue-chip stocks with strong dividends. “I have always been motivated by the knowledge that only I can control my destiny,” she explains. “My husband and I paid off the mortgage — that was when interest rates were near 20% — and we never borrowed again for spending.

“Of course, I can clear my investment debt in a moment by using cash in one of my accounts. My philosophy has always been not to take risks that I cannot afford, especially when it comes to borrowing money.

“Nobody can look after me as well as I can,” she adds.

That’s a lesson a lot of retirees have yet to learn.

Carney plots cautious rate path

Jeremy Torobin Globe and Mail  

Mark Carney is taking a cautious approach to raising interest rates, weighing Canada’s powerful economic rebound against the uncertainty of an “increasingly uneven” recovery across the globe.

The Bank of Canada Governor became the first central banker in the Group of Seven to raise borrowing costs since the financial crisis and recession, increasing the benchmark overnight rate Tuesday by one-quarter of a percentage point to a still exceptionally low 0.5 per cent.

Policy makers will keep an eye on Europe’s troubles, and won’t move more aggressively than they see fit, the Bank of Canada suggested, even though the economy is rebounding rapidly and inflation will likely exceed its 2-per-cent target this year. Much like in 2008 when the U.S. financial crisis pulled Canada into recession, the country’s economic health depends in large part on policy makers in other countries successfully containing homemade problems.

“Interest rates are incredibly low, given the strength of the domestic economy, but the global story is where it’s at right now,” Eric Lascelles, chief economic strategist at TD Securities in Toronto, said in an interview. “The level of uncertainty suggests there’s not a lot of confidence in the forecasts.’’ The open-ended nature of the announcement sparked a fall in the Canadian dollar and yields on two-year government bonds as investors pulled back their bets on what they had expected might be a series of uninterrupted rate hikes going forward.

The Bank of Canada as suspected has raised its overnight rate by basis points and the banks will most likley follow by raising prime to

This means if you have a 400,000.00 mortgage your payment will increase by as much $60/monthly.

With every 25 basis point increase you can expect $12-$15 dollars per 100,000.00 in mortgage amount.

We expect prime to continue to rise in 2010 and 2011. For as long as interest rates have been recorded 88% of the time people pay less interest with a variable rate, when the right mortgage plan is in place. We recently helped a young family reduce there mortgage from 30 years to 18 years even placing into consideration the antisipated increases.

What would you do with that additional savings? Call 604-802-3983 or introduce us over an email at acalla@dominionlending.ca to someone that you truly care about to see how we can help you today!

Bank of Canada increases overnight rate target to 1/2 per cent and re-establishes normal functioning of the overnight market

OTTAWA – The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly raised to 3/4 per cent and the deposit rate is kept at 1/4 per cent, thus re-establishing the normal operating band of 50 basis points for the overnight rate.

The global economic recovery is proceeding but is increasingly uneven across countries, with strong momentum in emerging market economies, some consolidation of the recovery in the United States, Japan and other industrialized economies, and the possibility of renewed weakness in Europe. The required rebalancing of global growth has not yet materialized.

In most advanced economies, the recovery remains heavily dependent on monetary and fiscal stimulus. In general, broad forces of household, bank, and sovereign deleveraging will add to the variability, and temper the pace, of global growth. Recent tensions in Europe are likely to result in higher borrowing costs and more rapid tightening of fiscal policy in some countries – an important downside risk identified in the April Monetary Policy Report (MPR). Thus far, the spillover into Canada from events in Europe has been limited to a modest fall in commodity prices and some tightening of financial conditions.

Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed. Going forward, household spending is expected to decelerate to a pace more consistent with income growth. The anticipated pickup in business investment will be important for a more balanced recovery.

CPI inflation has been in line with the Bank’s April projections. The outlook for inflation reflects the combined influences of strong domestic demand, slowing wage growth, and overall excess supply.

In this context, the Bank has decided to raise the target for the overnight rate to 1/2 per cent and to re-establish the normal functioning of the overnight market.

This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.

Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.

Information note:
The next scheduled date for announcing the overnight rate target is 20 July 2010. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection

 Enjoy your week

Angela Calla, AMP,Mortgage Expert
Host of “The Mortgage Show” on CKNW 980 Saturdays at 7pm
DLCBC Mortgage Group Ltd.Tel: 604-802-3983
Fax: 604-939-8795
Toll Free: 1-888-806-8080
Email: acalla@dominionlending.ca
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