When the Canadian Real Estate Association releases its latest resale home prices and sales data, there may be early signs that the modest decline in housing demand may turn into the “significant slowdown” the bank has warned about.

As usual, although they may be smart, the smart people who advise the governor of the Supreme Central Bank of Canada can only make educated estimates of the future of the domestic and global economy based on the data they collect now.

But in general, the Bank of Canada recently announced cuts in bond purchase stimulus measures- From USD 3 billion to USD 2 billion per week ——It shows that McCallum and his advisers are increasingly confident that the Canadian economy is improving.

Canadians are more confident

“Canadians and Canadian companies are more confident, and we think this will be reflected in their spending and investment decisions,” McCallum told reporters at the bank’s virtual press conference on Wednesday.

In fact, McCallum foresaw a strong consumer-led economic boom-he said it was his contribution to himself.

When asked if he would advise consumers to go shopping, McCallum declined to provide personal advice. Except for examples. “I bought an exercise bike and I admit that it helped me through this crisis,” he replied.

Part of the reason for McCallum’s optimism is that the expected surge in consumer spending will help incentivize companies to invest to expand capacity. The strong US economy is where Canada exports the most, which means that companies here will also seek to prepare for the external market.

The inflation rate south of the border has risen sharply this week, A 13-year high of 5.4%, Which shows that the US economy is struggling to meet the needs of its own expanding economy.

Maybe Canada can help.

“It is clear that the U.S. economy is experiencing some capacity constraints,” McCallum said. “We do expect that the strong US economy will boost our export demand.”

Like his American counterpart, Federal Reserve Chairman Jerome Powell, McCallum once again insisted that inflation is still temporary and is expected to rise to 2% by 2024 once the pandemic-related interruption ends.

But when reporters asked questions suggesting that inflation would disappear so easily, McCallum revealed that the Bank of Canada also has its own uncertainty.

In fact, the central bank’s Monetary policy releaseIt was released before McCallum’s speech, clearly stating that inflation is still a moving target.

Inflation is still temporary

“The factors pushing up inflation are temporary, but their continuity and magnitude are uncertain and will be closely watched,” it said.

One issue that McCallum did not directly address is how the so-called temporary price increase might affect inflationary wage pressures.As mentioned earlier, even if they only last for one or two years, prices will rise at a rate of 4% and 5% Significantly reduce the spending power of the working-classWhether alone or as part of a union, workers will negotiate to restore this spending power.

McCallum’s answer is retrospective, rather than addressing these future wage demands and their impact on the path of inflation. “So far, wages have indeed been quite low,” he said.

As mentioned earlier, some of the most interesting parts of this week’s policy report In the last section The “risk to the inflation outlook” is itemized.

These risks may lead to higher-than-expected inflation, including a stronger-than-expected burst of consumer spending, or a longer-lasting bottleneck in the supply of parts or labor, which will increase costs.

On the more pessimistic side, factors that may make inflation lower than banks’ current expectations include the new outbreak of COVID-19 infection, especially among the unvaccinated population; weaker-than-expected exports, which may be worsened by the appreciation of the Canadian dollar; and the world Economic growth has slowed, and the bank currently sets the rate at 7% this year.

But for many Canadians, one of the most worrying risks may be the central bank’s May report Regarding the country’s economic vulnerability: House price.

Although the central bank and many other institutions are happy to see some fever in Canada’s well-known hot real estate industry, the risk is that the decline may go too far.

Whether in today’s CREA data or in the next few months, many people want to see prices and sales have begun to slow down.

People don’t need so many houses

“The basic situation forecast includes a gradual slowdown in real estate market activity,” said MPR this week. “There is a risk that the adjustment may be faster or more obvious.”

McCallum said that this reversal may be the product of other benign economic forces, because families no longer need to expand their living space, because this is most of their lives, from work to school to entertainment.

“Now we can go to the restaurant, do you still want a bigger kitchen?” McCallum asked in an explanatory way.

Watch | The economic dangers of skyrocketing housing prices:

Home sales and prices in the Greater Toronto Area hit record highs year-on-year. Experts warn that this is a dangerous pattern across the country that threatens the overall economy. 2:04

“The rapid adjustment in the real estate market may also have an adverse effect on consumption. If house prices fall, the situation may get worse,” the policy report warned.

In an economy where housing plays such an important role, this can be a huge setback, especially when total employment and business investment are still far below pre-pandemic capacity.

This is one of the reasons why the Bank of Canada is slowly reducing its stimulus in the form of bond purchases while insisting that it is far from ready to start raising interest rates.

Instead, McCallum chose the middle point between revitalizing the economy and releasing a little air.

Follow Don Pitis on Twitter @don_pittis