Key Takeaways:

• Despite lower CPI numbers, inflation may not be a temporary blip.
• Rising bond yields suggest further interest rate increases may be coming.
• Recent US PPI numbers were higher than estimated.
• Canadian labour market added 150k jobs in January, primarily in full-time positions.
• Homeowners with mortgages may feel the impact of rising interest rates, particularly in the context of the significant increase in the mortgage interest cost index.

Recently, the release of lower-than-expected CPI (Consumer Price Index) numbers provided some initial relief, with the year-over-year number coming in at 5.9% versus an estimated 6.1%, and the month-over-month number at 0.5% versus an estimated 0.7%. However, it's important to take a deeper look at the underlying factors that may suggest this is just a temporary blip, and that interest rates may continue to rise in the future.

One key factor to consider is the rise in food and gasoline prices. In January, food prices increased by 10.4%, while gasoline rose by 2.9%. These increases can have a significant impact on the overall inflation rate, and suggest that inflationary pressures may continue to be a concern for the Canadian economy.

Another factor to consider is the increase in bond yields. Initially, bond yields dropped on the announcement of the CPI numbers, but then climbed to their recent October highs. Last October, inflation was at 6.9%, and there was a lot of uncertainty around how high the Bank of Canada would raise interest rates and for how long. This suggests that the market may be anticipating further interest rate increases in the future, and that the lower CPI numbers may just be a temporary reprieve.

Additionally, the strong jobs number in January is also a factor to consider. The Canadian labour market added 150k positions in January, with full-time employment up 121k and part-time employment up 28.9k. The fact that gains were concentrated in full-time jobs in the private sector, alongside people working more hours, makes this an even more impressive report. While a strong jobs number is generally positive for the economy, it can also lead to increased wage pressures, which can in turn lead to higher inflation.

Lastly, the higher-than-expected PPI (Producer Price Index) numbers in the United States are also a factor to consider. In January, PPI came in at 0.7% versus an estimated 0.4%, and core PPI came in at 0.5% versus an estimated 0.3%. While this is not directly related to the Canadian economy, it can still have an impact on inflationary pressures and interest rates.

Taking all of these factors into account, it's important for investors and home-owners to consider the potential impact of rising interest rates on their investment and mortgage strategies. The Bank of Canada recently paused their interest rate increases to assess how previous hikes have affected inflation. However, with the aforementioned factors potentially contributing to inflationary pressures, it's possible that interest rates may continue to rise in the future. As such, it's important to stay informed about these trends and take proactive steps to mitigate risk.

In conclusion, while the recent lower CPI numbers may have provided a momentary respite, it's important to keep a broader perspective on the factors that are shaping the Canadian economy. By staying informed and taking proactive steps to manage risk, investors can position themselves for success in the face of changing economic conditions. Ultimately, a forward-thinking approach can help investors weather economic volatility and achieve their financial goals.