The March inflation numbers clearly showed that the large increase for February was due to the Winter Olympics in B.C.
In February, prices for things such as traveller accommodations soared 16 per cent, but in March they dropped back to a more normalized 2.8 per cent. Canada’s annual inflation rate in March dropped two tenths of a point to 1.4 per cent and the much more closely watched Bank of Canada’s core inflation rate fell by 4 tenths to 1.7 per cent (back under the 2 per cent level the BOC considers crucial).
So does this mean that Canada’s central bank will still raise interest rates at its next scheduled meeting in June? I believe it does. As the economy continues to rebound the emergency measures put in place by the Bank of Canada to help the economy back on its feet are no longer needed.
With the new data released Friday, I believe that the stock market has even more ammunition to move higher. A rising interest rate environment is never a good thing for the stock market. However, if the rise is gradual, I believe the market will be able to cope better and not fall as Canada raises its interest rates.
As well, look for fixed income products like GIC’s, government bonds and even good quality corporate bonds to remain paying a low rate of interest for the foreseeable future. This too, in my opinion will only get even more investors that are tired of these low interest rates on fixed income products to move their money into the stock market for potentially a better return.
There is a lot of money still on the sidelines in investments like money market and high interest accounts. The longer the rates stay low, the more likely these individuals holding these investments will consider investing in the stock market to potentially get that higher rate.
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– Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities.