Calm down

Economists are feeling lit this week. So much going on. Some of the news seems inexplicable.

Like this: in Canada last month real estate sales jumped from March. New listings were higher. And the national average home price increased year/year by 2.2%.

No, not a typo. Prices up. In fact, excluding the gnarly bits of the country – GTA and LM – real estate has been largely holding its own. No crash. Not even much of a correction. And in some places, weird green shoots.

But wait. There are clouds.

Despite trying to make nicey in Beijing this week, Trump is in serious trouble with his Iran war. There’s no way out. The adversary is stronger now than it was. Short of a disastrous, bloody, expensive and protracted ground invasion – or nuking the country – there is no path for America. So it’ll just have to swallow defeat while Trump claims victory.

The upshot is higher energy costs for longer. That means inflation, No mortgage rate cuts. Increased uncertainty – especially for the Americans who elected this rogue leader.

In case you missed it, inflation in the States has erupted. Last month it hit a three-year high of 3.8%, or almost twice the target set by the central bank. Gas was up, of course, but so is everything else, including rents, housing and services.

“The unfavorable and larger than expected jump in core prices shows pressures are now spreading beyond energy, transportation, and food, into larger categories such as services and housing,” says Bay Street economist Scott Anderson. “If the energy price shock doesn’t subside soon, we can expect more of the same in the months ahead.”

It gets worse. Right after that inflation bomb came another, indicating that producer prices – costs in the system heading for consumers – are bloating even faster. By a very scary 6%.

“On the heals of disappointing CPI results, the April producer price report flags intense inflation pressure in the pipeline,” says BMO economist Sal Guatieri. “Producer prices popped 1.4% in April, nearly three times market expectations, sending the yearly rate skyward to 6.0% from an upwardly-revised 4.3%. The price increases were spread wide and far.”

And Scotia’s Derek Holt adds this: “Core services inflation accelerated in ways that continue to defy linkages with wages, while the breadth of price increases continues to rise.”

Wazzit mean?

More of this.

Americans are freaking out about the economy, the cost of living, the deterioration in quality of life and the yawning inequity between average folks and all those billionaires who travelled on Air Force One to China with 47 this week. Political change is in the air and social unrest may follow. America is a messed-up country at the moment, belying its innate strength, power and potential for human good.

It also means the next move for interest rates could be up, not down. At the least, there will be no relief from the current cost of money until well into 2027. Unless, of course, Trump’s new Fed pick – Kevin Warsh (he starts the job tomorrow) – manages to force rates lower, as Trump has ordered him to. That would throw stimulus on the economy, ignite stocks further, trigger the moribund US housing market and send inflation skyward.

And then, yes, either rates would have to increase sharply to quell rising prices or America causes a global bond bust.

But relax. Not happening. Warsh is unlikely to be a complete Trump sock puppet and both Canadian and American interest rates will stay right about where they are. As this pathetic blog has been underscoring lately, Canada will also – every day – look like a way better place to live than the dumpster fire to the south.

As a little evidence of that, we circle back to the biggest investment most people ever make, which is their home. Last month over 42,000 Canadian families decided it was time to buy, and collectively they pushed values a little higher. “We live with worry and do nothing until doing so keeps us from what we want to do,” says Toronto realtor and data nerd Robert Ede. “So then we do it!

“The Slow and steady return to normal has begun,” he claims. “Some are posting and commenting that the world’s money is failing and that as a result the sky is falling too. I disagree. I do agree that inflation (decrease in purchasing power of USD & CAD) is coming back. Soon we’ll hear about ‘repaying in devalued dollars’ as we did in the mid/late 1970’s.”

By the way, kids, the wrinklies recall 22% interest rates and 12.9% inflation. Banks even stopped lending five-year mortgages. In August of 1981 the Bank of Canada rate was over 20%. Today it’s 2.25%.

Everybody chill.

About the picture: “This is my dog’s best buddy, Molly, and her stuffed ducky from childhood,” writes a blogger calling himself Tripping Toads (seriously).  “Molly’s an Irish Setter mix and she has a lot of friends in the hood.  Perhaps her fav is another red beauty named Rex.  (They are the Beckmans of dog-duos… seriously.)  Molly doesn’t seem to care one iota about taxes, retirement planning, that crazy American, or the state of the world, but she sure loves her playmates and their owners. She will belly-up for anyone offering a rub or treat, and she seems very sure that every human in the park wants to meet her, always.  No fear, no worries.  Just good-vibing love… and a ducky.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2026/05/14/calm-down/