The Bank of Canada could adopt this legendary quote from the late Yogi Berra, the famous New York Yankees catcher: “It ain’t over ’til it’s over.”
• Also read: The Bank of Canada decides to take another interest rate break
Although the Governing Council of the Bank of Canada has decided to keep the key interest rate at 5%, it reiterates that it is still concerned about the slow progress towards price stability and the increasing risks of inflation and is therefore ready to increase the key interest rate if necessary anew.
This undoubtedly explains why banking institutions offer savers surprisingly generous returns these days. Major banks offer 5.50% on 1-year GICs and a 5.0% annual yield on 3- and 5-year GICs.
The other side of the coin? This “generosity” to savers brings them great income: banks re-lend the same deposits at significantly higher interest rates when they extend mortgages, personal loans, business loans, car loans, etc.
Just in relation to mortgages, I would like to remind you that the “five-year variable” rate increased from 2.45% in March 2022 to a current rate of 7.20%. For every $100,000 mortgage amortized over 25 years, monthly mortgage payments increased from $445.48 to $712.81, a 60% increase. This is catastrophic for borrowers.
THE NEXT PRICE LEVEL?
If there is another increase in the Bank of Canada’s key interest rate this year, it will be announced on December 6th.
Note to borrowers: Stay tuned as the risks of rising inflation are a major concern for Bank of Canada Governor Tiff Macklem and his acolytes on the Governing Council.
INFLATION RISKS
According to the Bank of Canada, what are the risks?
First, inflation has already been above the 2% target for two years. Worse still, inflation is expected to remain slightly above 3 percent for another year.
Second, progress towards the 2% inflation target is slow and the threat of higher inflation is increasing globally. This has increased the risk that disinflation will stagnate or even that inflation will rise again.
Third, inflation expectations among households and companies remain high.
Fourth, companies may also be slow to adjust their pricing practices.
Fifth, if the labor market remains tight or productivity growth remains weak, cost pressures are likely to be stronger and more sustained than expected.
Sixth, disruptions to crops and supply chains due to increasing extreme weather events could also put upward pressure on inflation.
Seventh, oil prices are higher than expected.
Eight: The conflict in Israel and Gaza has so far had no impact on global oil supplies. However, if this conflict spreads to other countries in the region, oil supplies could be disrupted, causing oil prices to rise.
Ninth, these increases could be reflected in other prices and inflation could skyrocket, especially in an environment where companies frequently adjust their prices.
According to the Bank of Canada, increased geopolitical uncertainty could also lead to new cost pressures given the impact on global supply chains for goods and raw materials.
We are not out of inflation!
