Bank of Canada Rolls Out New Forecasting Model with Focus on Mortgages and Housing

The Bank of Canada has introduced a new forecasting model called Prima to improve its understanding of inflation and economic growth. The model focuses on mortgage payments, housing supply, and business costs as key drivers of spending and inflation.

Prima entered use in September and builds on the Bank's previous models with more detail on household finances. It tracks how interest rate changes affect outstanding mortgage debt and distinguishes between households with different financial circumstances.

The model shows that rate hikes initially increase mortgage interest costs, but then ease other ownership costs as housing demand and construction cost pressures weaken. Rent inflation responds more slowly due to the time it takes for new supply and rents on existing leases to adjust.