The Bank of Canada is expected to raise its benchmark interest rate by half a percentage point on Wednesday, a move designed to rein in inflation, running at its highest level in decades.
There’s a virtually unanimous view among economists that the bank will move its benchmark lending rate to 1.5 per cent on Wednesday, the second such hike in a row and a crystal clear signal that the pandemic-induced era of cheap money has come to an end.
While that’s bad news for anyone who owes money or wants to borrow some, it’s not hard to see why the bank feels compelled to act.
The price of everything from food to gasoline and housing has exploded during the pandemic, as supply and demand imbalances brought about because of COVID-19 have coupled with record-setting amounts of stimulus cash to fuel inflation.
Officially, Canada’s inflation rate sits at 6.8 per cent, its highest level in 30 years. Costs for basic necessities, like putting food on the table and keeping a roof over one’s head, have gone up by even more, with food and shelter rising 9.7 and 7.4 per cent, respectively, in the past year.
The current inflation rate for necessities is two to three times higher than what the bank likes to see. While low interest rates aren’t the only factor driving up inflation, the central bank is feeling the pressure to move swiftly to cool things down.
Nathan Janzen, an economist with RBC, thinks Canada’s central bank is on track for a series of larger-than-normal hikes in a row, until its rate gets to roughly three per cent. Canada’s benchmark interest rate hasn’t hit that level since the 2008 financial crisis.
“The looming question is whether rates need to rise above that neutral range to get inflation back under control,” Janzen said.
Front Burner21:35Everything is expensive. Why?
Inflation is obvious in Canada, but the reasons for it are a little more complicated. Prices at gas stations rose above $2 a litre in many parts of the country, while the cost of pasta is up 20 per cent at grocery stores. Canada’s official inflation rate hit a three-decade high in April, rising at a 6.8 per cent annual pace. But what’s behind these sticker-shocking prices can’t be explained by any one factor; the ongoing war in Ukraine, climate change and even some unprecedented monetary policy all contribute to the current situation. Today, CBC business reporter Pete Evans joins Front Burner to sort through the myriad reasons prices keep rising and why the current inflation in Canada doesn’t mean the federal COVID-19 stimulus was a mistake.
It’s hard to overstate the impact that interest rates more than twice as high as they were before the pandemic would have on the broader economy. The most obvious impact would be in the housing market.
After increasing at a torrid pace for most of the pandemic, Canadian house prices have started to cool down ever since the central bank made its first tiny rate hike in March. Sales are down sharply just about everywhere, and selling prices have inched lower too, down from an all-time high average of $816,000 in February to $746,000 in April.
May’s numbers are expected to show that downward pace quickening, and that’s before the impact of this week’s expected hike is factored in.
WATCH | Here’s what a central bank rate hike could do to the housing market:
How the Bank of Canada rate hike could impact house prices
2 months ago
Duration 5:58
Personal finance expert and Credit Canada CEO Bruce Sellery answers questions about the latest Bank of Canada interest rate hike and what it could mean for house prices.
Sung Lee, a mortgage broker with rate comparison website Rates.ca, said some buyers are already getting cold feet. And many of those who are still willing to jump in are finding themselves able to afford less than they anticipated.
“We’ve seen a slight dip in mortgage inquiries after the Bank of Canada first raised rates, which seems to be in line with the recent slowdown in the real estate market,” Lee said in a recent commentary.
Anyone wishing to get a mortgage to buy a home must have their finances stress tested in order to discern if they can handle higher rates. And even the relatively small rate hikes that have happened so far have many would-be buyers failing to meet the new, higher bar. They are then compelled to buy something more affordable — or hold off entirely.
Currently, most borrowers have their finances tested as if mortgage rates were 5.25 per cent; that’s quite a bit higher than the level many Canadians would get from a lender right now.
But as those real lending rates inch higher, the bar for the stress test gets raised too. This causes some prospective buyers “to either hold off on purchasing or turn to alternative methods to raise the amount of mortgage they can afford, such as credit unions or private lenders,” Lee said.
Analyst urges ‘aggressive’ rate hikes
Canada is far from the only central bank trying to battle inflation with higher lending rates, but strategists at Dutch bank ING say the Bank of Canada has a harder job than some because its economy is so heavily impacted by what its neighbour to the south does.
“To generate the same degree of monetary tightening, the Bank of Canada tends to need to be more aggressive on policy rate increases,” James Knightley and Francesco Pesole wrote in a commentary last week.
“We would argue that you cannot dismiss the possibility of a 75-point hike given the current macro environment.”
A hike of that size would take lending rates to where they were before the pandemic started — when the central bankers around the world were cautiously trying to get interest rates back up to something approaching normal.
More than two years into a pandemic, what “normal” means now is anyone’s guess, but bank watchers agree that the old rules will likely no longer apply.
VANCOUVER – Contract negotiations resume today in Vancouver in a labour dispute that has paralyzed container cargo shipping at British Columbia’s ports since Monday.
The BC Maritime Employers Association and International Longshore and Warehouse Union Local 514 are scheduled to meet for the next three days in mediated talks to try to break a deadlock in negotiations.
The union, which represents more than 700 longshore supervisors at ports, including Vancouver, Prince Rupert and Nanaimo, has been without a contract since March last year.
The latest talks come after employers locked out workers in response to what it said was “strike activity” by union members.
The start of the lockout was then followed by several days of no engagement between the two parties, prompting federal Labour Minister Steven MacKinnon to speak with leaders on both sides, asking them to restart talks.
MacKinnon had said that the talks were “progressing at an insufficient pace, indicating a concerning absence of urgency from the parties involved” — a sentiment echoed by several business groups across Canada.
In a joint letter, more than 100 organizations, including the Canadian Chamber of Commerce, Business Council of Canada and associations representing industries from automotive and fertilizer to retail and mining, urged the government to do whatever it takes to end the work stoppage.
“While we acknowledge efforts to continue with mediation, parties have not been able to come to a negotiated agreement,” the letter says. “So, the federal government must take decisive action, using every tool at its disposal to resolve this dispute and limit the damage caused by this disruption.
“We simply cannot afford to once again put Canadian businesses at risk, which in turn puts Canadian livelihoods at risk.”
In the meantime, the union says it has filed a complaint to the Canada Industrial Relations Board against the employers, alleging the association threatened to pull existing conditions out of the last contract in direct contact with its members.
“The BCMEA is trying to undermine the union by attempting to turn members against its democratically elected leadership and bargaining committee — despite the fact that the BCMEA knows full well we received a 96 per cent mandate to take job action if needed,” union president Frank Morena said in a statement.
The employers have responded by calling the complaint “another meritless claim,” adding the final offer to the union that includes a 19.2 per cent wage increase over a four-year term remains on the table.
“The final offer has been on the table for over a week and represents a fair and balanced proposal for employees, and if accepted would end this dispute,” the employers’ statement says. “The offer does not require any concessions from the union.”
The union says the offer does not address the key issue of staffing requirement at the terminals as the port introduces more automation to cargo loading and unloading, which could potentially require fewer workers to operate than older systems.
The Port of Vancouver is the largest in Canada and has seen a number of labour disruptions, including two instances involving the rail and grain storage sectors earlier this year.
A 13-day strike by another group of workers at the port last year resulted in the disruption of a significant amount of shipping and trade.
This report by The Canadian Press was first published Nov. 9, 2024.
The Royal Canadian Legion says a new partnership with e-commerce giant Amazon is helping boost its veterans’ fund, and will hopefully expand its donor base in the digital world.
Since the Oct. 25 launch of its Amazon.ca storefront, the legion says it has received nearly 10,000 orders for poppies.
Online shoppers can order lapel poppies on Amazon in exchange for donations or buy items such as “We Remember” lawn signs, Remembrance Day pins and other accessories, with all proceeds going to the legion’s Poppy Trust Fund for Canadian veterans and their families.
Nujma Bond, the legion’s national spokesperson, said the organization sees this move as keeping up with modern purchasing habits.
“As the world around us evolves we have been looking at different ways to distribute poppies and to make it easier for people to access them,” she said in an interview.
“This is definitely a way to reach a wider number of Canadians of all ages. And certainly younger Canadians are much more active on the web, on social media in general, so we’re also engaging in that way.”
Al Plume, a member of a legion branch in Trenton, Ont., said the online store can also help with outreach to veterans who are far from home.
“For veterans that are overseas and are away, (or) can’t get to a store they can order them online, it’s Amazon.” Plume said.
Plume spent 35 years in the military with the Royal Engineers, and retired eight years ago. He said making sure veterans are looked after is his passion.
“I’ve seen the struggles that our veterans have had with Veterans Affairs … and that’s why I got involved, with making sure that the people get to them and help the veterans with their paperwork.”
But the message about the Amazon storefront didn’t appear to reach all of the legion’s locations, with volunteers at Branch 179 on Vancouver’s Commercial Drive saying they hadn’t heard about the online push.
Holly Paddon, the branch’s poppy campaign co-ordinator and bartender, said the Amazon partnership never came up in meetings with other legion volunteers and officials.
“I work at the legion, I work with the Vancouver poppy office and I go to the meetings for the Vancouver poppy campaign — which includes all the legions in Vancouver — and not once has this been mentioned,” she said.
Paddon said the initiative is a great idea, but she would like to have known more about it.
The legion also sells a larger collection of items at poppystore.ca.
This report by The Canadian Press was first published Nov. 9, 2024.
