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Inflation in Canada: What is the key risk factor?

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The Bank of Canada highlighted early signs of financial stress among Canadian households as one of the key risks in the financial system. The unprecedented increase in interest rates has raised the costs for households, a vulnerability if a recession were to occur.

“Elevated interest rates and declining house prices have reduced the financial flexibility of many households,” reads the bank’s Financial System Review released on Thursday.

Due to the increased expense of servicing mortgages, homebuyers have relied more on credit card debt, which has exceeded pre-pandemic levels.

The median debt service ratio, which looks at the net income of households and the portion of it going towards paying off debt on their mortgages, has increased to 19 per cent in 2022. Close to 30 per cent of mortgages have households paying a median of 25 per cent or more of their income to service their payments.

One-third of mortgages have seen an increase in payments since February of last year and all mortgages will have increased payments by 2025-26, when renewals occur.

The increase in costs will be highest among those households with fixed-rate mortgages, which will see their payments increase by 20 to 25 per cent in 2025 or 2026. Borrowers with fixed payments will see an increase of 40 per cent, that same year. Variable rate holders have already seen their payments go up by 50 per cent this past year.

The bank says households that bought into the housing market during its peak in pricing during the COVID-19 pandemic will face the most hardship moving forward.

To help alleviate the cost of those monthly payments, the share of mortgages with an amortization longer than 25 years has increased from 34 per cent in 2019 to 46 per cent in 2022. The bank does not see this as permanent, but as a short-term measure that homeowners are adopting to fight rising interest rates.

The central bank did not rule out increasing its policy rate last month. Despite expectations that inflation would continue to decrease, Statistics Canada reported inflation rose 4.4 per cent last month, up from its 4.3 per cent increase in March.

Other top risks in the financial sector include the recent banking stresses in the United States, with the defaults of Silicon Valley Bank, Signature Bank, Credit Suisse and most recently, First Republic Bank this spring. The bank sees these defaults as an ongoing adjustment in the regional banking sector.

The tightening of liquidity in the banking sector also remains a top concern, particularly as bank funding costs have increased. This remains a key risk if a recession were to occur.

 

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One of Canada’s new navy ships stopped in Hawaii after taking on water

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OTTAWA – One of the country’s newest navy ships is tied up in a U.S. port after it took on 20,000 litres of water because of a leak.

HMCS Max Bernays is one of Canada’s new Arctic and offshore patrol ships, built in Halifax by Irving Shipyards.

It was taking part in an international exercise called the Rim of the Pacific Exercise when the incident happened July 12.

A Defence Department spokesperson said a valve and pump in one of the ship’s seawater cooling systems was leaking for about half an hour.

It’s not clear how long the repairs will take, and the navy is still trying to determine if the other seawater cooling system is affected.

The ship, delivered to the navy in late 2022, is one of three vessels sent to support Canada’s Indo-Pacific strategy this spring.

This report by The Canadian Press was first published July 23, 2024.

The Canadian Press. All rights reserved.



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Trudeau’s hand-picked candidate for Montreal byelection riles aspiring contenders

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OTTAWA – Prime Minister Justin Trudeau’s decision to hand-pick a candidate for a riding in an upcoming Montreal byelection isn’t being well-received by three aspiring contenders who spent months campaigning only to be shunted aside.

The Liberals announced Montreal city Coun. Laura Palestini last Friday as the party’s candidate in a byelection whose date has yet to be announced for the riding of LaSalle—Émard—Verdun. The byelection must be called by July 30.

Three aspiring candidates — local school commissioner Lori Morrison; entrepreneur Christopher Baenninger; and former Quebec Liberal party organizer Eddy Kara — denounced the decision, with Morrison calling it “anti-democratic, 100 per cent.”

Morrison said she couldn’t believe the party let her knock on doors and sign up memberships only to ultimately abandon plans for a nomination meeting.

The nomination to become candidate in LaSalle—Émard—Verdun, Morrison said, was hotly contested because the riding “has been a Liberal stronghold for a very, very long time.”

Liberal campaign co-chair Soraya Martinez Ferrada has said it was Trudeau’s decision to prevent party members from choosing the candidate and to instead select Palestini, who represents the LaSalle borough on Montreal city council. Ferrada was on vacation and unavailable for comment Monday, her office said. The party declined to make anyone else available and instead provided a statement.

The Liberals have won the riding in all three elections since it was created, with former justice minister David Lametti re-elected with 42.9 per cent of the vote in 2021. The Bloc Québécois candidate received almost half as many votes — 22.1 per cent — while the New Democratic Party and the Conservatives picked up 19.4 per cent and 7.5 per cent of the vote, respectively.

Lametti resigned on Jan. 31, after he was excluded from Trudeau’s cabinet in last summer’s reshuffle.

Baenninger said he was “in shock” at Trudeau’s decision to forgo the nomination process and hand-pick a candidate, saying it was “not right” and “demotivating.”

Morrison refused to say whether the party is respecting its values by disregarding a nomination vote; Baenninger, meanwhile, said the decision falls within the rules. The party’s vetting committee, he explained, can reject any candidates in the best interest of the party.

However, Baenninger said, the party didn’t do itself any favours by pushing three candidates aside in favour of Palestini. “I’m going to be shrewd: we didn’t improve our chances. I’ll leave it at that.”

Trudeau’s leadership has been under scrutiny since the party failed to retain the riding of Toronto—St. Paul’s, a longtime Liberal bastion for more than three decades, that was won by the Conservatives on June 24. Nationally, the Liberals have been polling roughly 20 points behind the Tories led by Pierre Poilievre for more than one year.

Both Baenninger and Morrison said that before Palestini was announced by the party, they had never heard her name before.

Kara, a filmmaker and former provincial Liberal organizer, had the support of former Quebec finance minister Carlos Leitão and ex-MP Jean-Claude Poissant. He said it’s “really shocking” that Trudeau interrupted the nomination process, adding that the party sent signals that members would choose the candidate, including by publishing a nomination kit.

He said he learned that the Liberals wanted someone of Italian origin to “ensure we get the Italian vote.” Kara said three members of the Liberal Party executive confirmed to him that they were also considering appointing Daniela Romano, another municipal councillor in LaSalle.

According to 2016 census data, 8.2 per cent of the riding’s residents are of Italian origin.

Palestini will face another municipal councillor in the byelection, as the NDP have named Craig Sauvé, who represents the nearby Sud-Ouest borough on city council. The Conservatives will run Louis Ialenti, who the party describes as “a common-sense small business owner.” The Bloc has not revealed its candidate.

This report by The Canadian Press was first published July 23, 2024.

The Canadian Press. All rights reserved.



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Adventure-seeking B.C. couple were victims found on Nova Scotia island: relative

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HALIFAX – The British Columbia couple whose remains recently washed ashore on Nova Scotia’s remote Sable Island have been identified as 70-year-old James Brett Clibbery and his 54-year-old wife, Sarah Packwood.

Clibbery’s sister, Lynda Spielman, said today the RCMP have confirmed their identities.

Spielman, a Calgary resident, says she’s heard many theories about what happened to the adventurous couple after June 11 when they left Halifax harbour in a 13-metre sailboat en route to the Azores — a 3,200-kilometre journey.

Spielman declined to speculate on what went wrong, and the Mounties have said they are still investigating.

On Monday, the RCMP confirmed they had identified Clibbery’s body with the help of the province’s medical examiner’s office, but they declined to release his name, citing privacy legislation.

The Mounties previously confirmed the couple’s sailboat, Theros, was reported missing on June 18, and it wasn’t until July 10 that their bodies were found in a three-metre inflatable boat on Sable Island, about 280 kilometres southeast of Halifax.

Clibbery and Packwood, who lived on B.C.’s Salt Spring Island, described themselves as adventure travellers and posted details of their voyages on a YouTube channel called Theros Adventures.

This report by The Canadian Press was first published July 23, 2024.

The Canadian Press. All rights reserved.

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