The Bank of Canada could adopt this legendary quote from the late Yogi Berra, the famous catcher of the New York Yankees: “It’s not over until it’s over.”
• Read also: The Bank of Canada opts for another pause in the key rate
Although it has decided to maintain the key rate at 5%, the Governing Council of the Bank of Canada affirms that it is nevertheless concerned by the slow progress towards price stability and by the increasing inflationary risks , and is therefore ready to increase the key rate again if necessary.
This undoubtedly explains why banking institutions are being surprisingly generous in the returns they are offering savers these days. Major banks offer 5.50% on 1-year GICs and an annualized return of 5.0% on 3-year and 5-year GICs.
The other side of the coin? This “generosity” towards savers brings them large revenues: banks re-lend these same deposits at significantly higher interest rates when renewing mortgages, personal loans, business loans, car loans, etc.
Just in terms of mortgages, as an example, I remind you that the “five-year variable” rate rose from 2.45% in March 2022 to a current rate of 7.20%. Per $100,000 of mortgage amortized over 25 years, monthly mortgage payments increased from $445.48 to $712.81, an increase of 60%. This is catastrophic for borrowers.
- Listen to the economy segment with Michel Girard via QUB radio :
THE NEXT RATE HIKE?
If another increase in the Bank of Canada’s key rate were to occur this year, it will be announced on December 6.
Notice to borrowers: stay tuned, because the risks of rising inflation are of serious concern to Bank of Canada Governor Tiff Macklem and his Governing Council acolytes.
INFLATION RISKS
According to the Bank of Canada, what are these risks?
One, inflation has already exceeded the 2% target for two years. Worse still: inflation is expected to remain slightly above the 3% mark for another year.
Two, progress toward the 2% inflation target is slow and risks of higher inflation are increasing globally. This has increased the risk that disinflation will stagnate or even that inflation will rise again.
Three, inflation expectations of households and businesses remain high.
Four, companies may also be slow to adjust their pricing practices.
Five, if the labor market remains tight or productivity growth remains weak, cost pressures are likely to be stronger and more lasting than expected.
Six, disruption to harvests and supply chains due to increased extreme weather events could also put upward pressure on inflation.
Seven, oil prices are higher than expected.
Eight, the conflict in Israel and Gaza has so far had no effect on global oil supply. But if this conflict spreads to other countries in the region, oil supply could be disrupted, thereby driving up oil prices.
Nine, these increases could be reflected in other prices, and inflation could skyrocket, particularly in a context 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 it will have on global supply chains for goods and raw materials.
We are not out of inflation!
2023-10-26 00:40:12
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