Good afternoon,
Well some good’ish’ news from the Bank of Canada as they increased the benchmark rate by only .50% in hopes to cool the economy further and tamper down inflation. This means that your Bank will increase their Prime Rate by .50% which increases your payment by $30/month per every $100,000 borrowed (Adjustable Rate Mortgage clients only).
What’s interesting is that the market was pricing in a .75%-1.00% increase, but the Bank chose not to, which makes me believe that they’re quite concerned about overshooting rate increases and thrusting us into a recession. Moving forward, I predict we will see less rate hikes and in smaller increments that are data driven (employment, core inflation).
Some food for thought:
The Problem: Inflation around the world remains high and broadly based. This reflects the strength of the global recovery from the pandemic, a series of global supply disruptions, and elevated commodity prices, particularly for energy, which have been pushed up by Russia’s attack on Ukraine. The strength of the US dollar is adding to inflationary pressures in many countries.
The Solution: tighter monetary policies aimed at controlling inflation are weighing on economic activity around the world. As economies slow and supply disruptions ease, global inflation is expected to come down.
Food prices: the increase to the cost of goods has been passed on directly to the consumer to keep profit margins equal. With these rate increases, the Bank of Canada hopes to decrease demand which will increase competition between retailers and force them to reduce their prices to earn our business.
Labour Market: The economy continues to operate in excess demand and labour markets remain tight. The demand for goods and services is still running ahead of the economy’s ability to supply them, putting upwards pressure on domestic inflation. To monitor this, just look at our month to month employment rate.
What the future holds: Inflation is projected to move down to about 3% by the end of 2023, and then return to the 2% target by the end of 2024. That to be said, there’s many factors that could alter this projection.
Are the rate increases finished? No, not yet, but the Bank of Canada will be looking at employment, and Core Inflation rates to determine their next move.
In my opinion, the Bank of Canada is doing whatever they can to reduce demand. Unfortunately, people’s wages have increased (wage/price spiral) and too many people are getting used to spending $7 for banana’s (entrenched inflation). What’s going to cause the Bank to change it’s path is when large companies start laying off their employees. So once those headlines start showing up in the news, I believe the Prime Rate will drop.
The Bank of Canada is set to make its final announcement on its benchmark rate for 2022 on Wednesday, December 7.
If you have any questions, we’ll be happy to review your needs and provide some guidance and options going forward. Here’s a LINK to my online scheduler and look forward to your booking something if needed.