Statistics Canada announced Tuesday that inflation was on the rise again, due in particular to the cost of gasoline, rent prices and the cost of mortgage interest.
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Inflation thus rose to 4% in August. Only the grocery basket is resisting the rise.
However, a major part of the recent inflation is due to the increase in the key rate alone.
“Obviously, Canadian households pay more for their mortgage, and that also translates into slower housing starts. […]which means that the price of rent has also increased quite significantly,” explains the show The Balance Sheet the economist Francis Gosselin.
“If we remove these two components, which are essentially the housing components, the increase in which is attributable to the increase in the key rate, there is practically no inflation in Canada,” he adds. further arguing that the Bank of Canada must, according to him, consider this aspect “in its calculations before making its next decision in October.”
The present situation seems paradoxical, since the increase in the key rate, which according to some experts is today responsible for inflation, was initially a measure by the Bank of Canada to mitigate and prevent inflation. .
“This is exactly the strategy that the Bank of Canada wanted to achieve. That is, by “suffocating” Canadian households with much higher mortgage payments, […] we withdraw money from everyday consumption, retail, travel and services. So essentially, that’s what was going to happen,” explains Mr. Gosselin.
“I don’t think anyone is surprised today to learn, for example, that the average mortgage payment in Canada has increased by 30%,” he recalls.
The financial strangulation of some households is such that around one in five only pays interest on their mortgage.
“We call it negative amortization, that is to say that it is a household which has a fixed payment, with a rate which is variable, and therefore at a given moment, when the mortgage rate increases and that the payment is fixed, we find ourselves in a situation where the monthly payment does not even cover the interest on the loan,” explains the economist, who adds that in a situation of negative amortization, the debt of an owner increases each month.
The key rate rose in a very short time from 0.25%, at the start of 2022, to 5%, so that for some households, mortgage rate payments could increase by 57%.
“And that, obviously, even the richest people in society can hardly cope with a 60% increase in their mortgage payments,” laments the economist.
“This is the particularity of what we are experiencing these days, with the Bank of Canada and the inflationary period,” he concludes.
2023-09-20 01:28:21
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