BC Economic Snapshot October 19, 2013

---

 Sluggish economy produces low inflation rate

VANCOUVER, BC, Oct 19, 2013/ Troy Media/ – Subdued inflationary pressure persisted into September providing some relief for consumer wallets amidst slow growth economic conditions.

Price levels, as measured by the consumer price index (CPI), were unchanged from year ago levels, and up only marginally from August by 0.1 per cent on a seasonally-adjusted basis. B.C. CPI growth is well below the national year-over- year gain of 1.1 per cent, but does not signal a deflationary environment.

The lower reading largely reflects the shift back to a PST system, which lowered after-tax prices for a number of goods and services, notably restaurant meals. Since the one-time decline, prices have climbed about 0.8 per cent. Annual inflation readings will be tempered by the effects of the policy change until April of next year.

The lower inflationary reading has been led by flat food prices. A 4 per cent decline in restaurant meal prices, which largely reflects the tax change, has offset increases in store-bought food prices.

Meanwhile, health and personal care prices were down 2 per cent and shelter related costs were 0.5 per cent lower on declines in homeowner replacement costs. Offsetting these declines were higher energy prices. Despite a month-to-month drop, energy prices were 2.8 per cent above the same month in 2012, led by higher natural gas and gasoline prices.

B.C. continues to operate in a low inflationary environment reflecting the sluggish economy and tempered wage growth. CPI inflation of just 0.2 per cent is forecast for this year, while the gain in 2014 will be a modest 1.2 per cent.

Housing
B.C.’s housing market rebound continued unabated in September with another hefty sales gain and tightening of market conditions. Seasonally-adjusted MLS home sales moved above 7,000 units for the first time since January 2010, marking a 5 per cent increase from August with strengthening activity observed in most areas of the province.

Actual monthly sales were up more than 40 per cent year-over-year while sales growth has been aggressive. Eye-popping gains have largely reflected base-year effects.
A cascading sales trend in 2012 generated among the lowest September sales performances in nearly two decades. Recent growth has pulled sales back to a level in line with the 10-year average.

Nonetheless, year-to-date growth was positive for the first time this year, moving above the same-period in 2012 by 3 per cent. Sales momentum has outpaced gains in new listings, leading to lower inventories in most areas of the province.

Sales-to-active listings ratios have been stable or moved higher, pointing to some tightening in housing markets. The Lower Mainland, Victoria, and Northern B.C. have recently moved into balanced market territory. Most areas continue to trend in buyers’ market territory, particularly in the central and southern interior and Vancouver Island regions outside Victoria – but conditions are stabilizing.

The average MLS price rose for a fifth consecutive month to a seasonally-adjusted $554,400, up 1 per cent from August. While the provincial average price has been skewed higher this year by stronger sales momentum in the higher-priced Lower Mainland, a scan of regional performance and constant-quality indicators, where available, suggests a recent firming of price levels in a number of areas.

The speed and endurance of the sales uptrend has been surprising but momentum is expected to subside. Recent gains have been fuelled by some pull-forward in market activity as interest rate hikes fuelled buyers with lower pre-approved rates to jump off the fence. Coming rate expirations should cool the market.

Meanwhile, the initial shocks of last year’s mortgage insurance rule tightening may have subsided, but low-equity buyers remain constrained by the changes going forward. A subdued economy, low employment growth, higher interest rates and federal government policies to constrain household leverage will curtail further demand growth.

Despite some moderation going forward, MLS sales growth will likely reach 7 per cent this year to surpass 72,000 units on recent gains and a poor performance during the back-end of 2012. A gain of 6 per cent is pegged for 2014 on a strengthening economy, but sales are forecast to remain below the post-2000 average of about 80,000 units.

Automotive
Sales of new vehicles in B.C. rebounded in August after showing signs of moderation in recent months. Total sales seasonally-adjusted vehicle sales reached 16,150 units, marking a 5 per cent gain from July and 12 per cent increase over the same month in 2012.

The stronger performance pushed year-to-date sales up 4.7 per cent, led by a 7 per cent gain in truck sales.

Vehicle sales are a secondary economic indicator for B.C.’s economy, acting as a gauge of consumer confidence and the willingness to make large-scale purchases. Annual vehicle sales are projected to rise by a modest 4 per cent this year to about 183,300 units, the highest level since 2007. Gains are largely driven by replacement demand and pent-up activity following low sales in recent year given labour market weakness and elevated debt.

| Central 1 Credit Union