Canada's inflation rate landed precisely where the consensus thought: 3.4%. That's down 1%-point from the 4.4% print last month.

While Bay Street expected it, most laypeople didn't. That's key. Inflation is now in the 3's for the first time in 22 months. That's a significant relief from 8.1% last June. If consumers believe CPI is dropping this fast, they're less prone to aggravate inflation by front-running purchases and demanding higher pay.

Here's the highlight reel from today's report:

• CPI increased a scant 0.1% m/m, so it wasn't all about base effects this time.
• Core inflation finally dipped below 4%, with the BoC's two main measures easing to 3.9% annualized on average (+0.2% m/m).

• The BoC's favoured 3-month core measure slowed 20 bps to 3.6%. That's meaningful progress, but 3.6% is still not 2.0%.
• One sobering stat was 3-month "core services excluding shelter"—a measure the BoC has grown fond of this year. It went the wrong way, accelerating 20 bps to 4.9%.

• We have one more easy comp (June 2022's 0.7% m/m print), and then comparables get tougher for a while—so tough they could slow CPI's progress until the January report in February 2024.

• The mortgage interest cost index—3.8% of the CPI basket—jumped almost 30% (+29.9%). It was the "largest contributor to the year-over-year CPI increase," said StatsCan. The agency was quick to point out that "Excluding mortgage interest cost, the CPI rose 2.5% in May, following a 3.7% increase in April.” Now, guess who influences mortgage costs the most in this country. That's right, the people fueling this index are the same people who need CPI lower.
• Various economists today are now reaffirming their view for sub-3% headline inflation before year-end, potentially even next month.
• Odds are, Tiff & Co. will whack borrowers once more. #OIS# probability is 57% for another hike on July 12, but let's see how employment data shakes out next week. Implied chances of an additional hike before year-end fell to 1 in 3 after today's CPI.
• Desjardins Economics rate analyst Royce Mendes, one of the least wishy-washy guys in the talking heads business, summed up the BoC's stance as:
  "With measures of recent price growth continuing to run above 3 ½%, it looks almost like a done deal that the Bank of Canada will raise rates another 25bps in July."
• Canada's 5-year yield was down one bps as of 10:30 a.m. ET today, despite the U.S. 5-year being up five bps. If the July 7 jobs report shows worsening unemployment and we get no more hawkish developments out of the U.S. through next week, there's still a chance 2023 5-year yields could top out below last October's high.

For data-dependent central banks, the next 12 days offer a smorgasbord of indicators. CPI, GDP, jobs numbers, inflation expectation surveys, you name it.

Investors have wagered ungodly sums on the inflation picture improving this summer. This next batch of data is crucial to them being right, and to the lid being kept on yields—and mortgage rates.

The marquee number for the BoC is CPI. It drops today, and the consensus calls for 3.4%. That would be down one whole percentage point from April.

If that's what we get, it may be largely attributable to #base effects#. To get a better read of the underlying trend, the BoC will focus on its favoured 3-month core measure instead.

Qualifying for a mortgage takes a lot more strategy than it used to. And banks are no longer the right move for millions of Canadians, as this chart below illustrates.

The share of mortgage business now flowing to credit unions, private/MIC lenders, and other non-banks is remarkable.

Federal policy has driven "riskier" borrowers outside the banking system since 2008. But all that risk still exists. It's just distributed differently now.

Few Canadians understand how crucial the Canada Mortgage Bond (CMB) program is to facilitating more mortgage options and lower rates.

Given all the government-imposed costs and limits on the CMB and #NHA MBS# programs since the #GFC# (wow, that's a lot of acronyms for one sentence), we wonder if even housing policymakers fully grasp its importance.

"The only way our small lenders compete is to have an edge on pricing," a major bank aggregator (mortgage investor) told us. "If anything prices outside where big banks price, they don’t have a chance." The government-backed CMB program is a crucial source of this low-cost funding, especially in the mortgage broker channel.

Despite its importance, the government is looking to end the Canada Mortgage Bond (CMB) system as we know it...and replace it with something else.

That "something else" has been a huge question mark because the Department of Finance has released so little information thus far—besides this consultation document.

After reading the document, National Bank Financial (NBF) called the proposal "one of the most material changes ever proposed for Canada’s domestic bond market."

The government's initiative begs all sorts of questions. Among them:

Canada's average home price has rocketed 19% from January's low. Regardless of one's opinion of average prices as a measure, that's monumental.

By June 7, Tiff & Co. at the BoC had seen enough. Their deliberations, published Wednesday, confirmed that resale housing's extraordinary "momentum" was a key reason for their un-pausing this month. The BoC remarked that "housing resale prices—which feed into the CPI with a 1-month lag—had increased for three consecutive months."

Meanwhile:

Just as new rate hikes threaten to push more mortgagors over the edge, we got this ominous headline from Reuters last week:

"Canada bank regulator says lenders should urgently tackle risks from mortgage extensions"

This got worrywarts in the housing market all riled up, thinking new regulatory policies might drive borrowers into default. So, we decided to investigate what OSFI was actually proposing.

Here's what Canada's bank regulator told us:

The chart above shows how much Canada's roller coaster rate outlook has changed in just 90 days.

The purple line shows the Bank of Canada cuts that were expected this year, just after the Silicon Valley Bank drama in March.

The yellow line shows where the market now thinks the BoC is headed, give or take.

We still get cuts either way, barring an external inflationary shock. It's just that now we have to wait longer for them. On top of that, investors now believe the average implied BoC rate over the next five years will be 104 bps higher than they thought in March.

Mortgage originators all feel how tough it is out there. But the latest stats put the challenge in perspective.

"The entire mortgage originations pie has shrunk by 42%," says veteran broker Jim Tourloukis of Advent Mortgage Services, citing first-quarter Equifax data on new mortgage volumes.

And not only is the pie smaller, but brokers are getting a smaller piece. CMHC data shows broker market penetration fell from 51% in 2022 to 43% in January. "I suspect this will be lower in Q2," Tourloukis estimates. "Also, these numbers are worse for uninsurable business."

But wait, there's more. To milk the desert analogy further, not only are brokers getting a smaller piece of a smaller pie, but "the pie doesn't taste as sweet as it used to," he says.

Why?

In the last two years, we don't know any mortgage marketer who's made more progress on Google than the financial comparison site, Wowa.ca.

It's climbed the Google ranks and built a 7-figure revenue in just five years. And just last week, it set a new personal best of 36,424 visits in one day, breaking its record for paid leads.

They know what they're doing over there, and we can all take something from Wowa's success.

Here's the gist of Wednesday's newsmaking Fed decision and the relevance to Canadian mortgage rates...

What happened

After 500 bps of hikes, the Fed paused for the first time in 11 meetings.

Why it happened

Chair Jerome Powell cited two main reasons:

Reverse mortgage upstart Bloom attracted $7 million of capital last month.

The series A round was led by St. Louis-based SixThirty Ventures, which focuses on quality late seed-stage fintechs.

We caught up with Bloom CEO Ben McCabe to see what this means for the company and its customers. He left us with new market insights and a teaser of what's to come.

Fifteen months into this harrowing tightening cycle, Canada's real (inflation-adjusted) policy rate is "unequivocally in positive territory." That was BMO Economics' assessment after last week's BoC hike.

Real rates are hard for most to wrap their heads around, but they matter. For one thing, when interest rates are meaningfully above inflation, savers enjoy rising purchasing power. In other words, people's returns outpace price level increases. That creates an incentive to save instead of spend.

At the same time, businesses are less inclined to invest in things like buildings and equipment—because interest expense is so high relative to their revenue potential.

With the BoC tightening the noose on borrowers again, "real rates" are even more positive. This phenomenon is slowing our economy more and more, getting us closer and closer to the disinflation we seek. To quote Axl Rose once again, all we need is just a little patience.