Once again, the Bank of Canada has raised its benchmark interest rate — this time to 4.25 per cent — reassuring us that its seemingly unending series of hikes are going to eventually help take the bite out of inflation.
It has a ways to go. Inflation is currently 6.9 per cent and the central bank wants it back at two per cent.
But for many Canadians, all they’ve seen is gas and food and just about everything else stay more expensive than ever, while mortgage rates soar.
CBC News readers have asked: So how is increasing interest rates actually supposed to be helping? According to economists, making it tougher to afford things is part of the plan.
Why is the Bank of Canada increasing interest rates so much?
That’s around where it’s been in Canada for the past 25 years.
But about a year ago, inflation started to rise — and rise, and rise — due to several factors, including supply chain issues that resulted from pandemic lockdowns, the war in Ukraine and climate change.
To get it down, Governor of the Bank of Canada Tiff Macklem says interest rates must go up.
“It’s a bit counterintuitive for Canadians,” he told CBC’s Peter Armstrong last month.
“Their rent’s going up, their groceries are more expensive, gasoline is more expensive. And now their borrowing costs are more expensive. So how does that work? Well, that does slow spending. That makes anything you buy on credit more expensive. So you you pull back and that helps get the economy balanced and that’ll relieve those price pressures.”
And that’s the whole point.
The Bank of Canada wants people to buy less stuff and slow the economy down. When the economy slows down, it says, prices will come down.
At the same time, there is a tacit acknowledgement that it’s going to hurt.
“Our economy will slow as the central bank continues to step in to tackle inflation,” said Finance Minister Chrystia Freeland in October.
“There will be people whose mortgage payments will rise. Business will no longer be booming in the same way it has been since we left our homes after the COVID lockdowns and went back out into the world. Our unemployment rate will no longer be at its record low.”
Bank of Canada governor explains how far he’s willing to go to get inflation under control
In a wide-ranging interview, Bank of Canada governor Tiff Macklem says Canadians should expect more interest rate hikes, and a mild recession is possible, as the central bank continues its fight against inflation.
How does raising interest rates slow inflation?
Macklem says the economy is still “overheated” — with demand high and supply low. And the difference between the two drives prices up.
So in the central bank’s reasoning, if it can get demand down — get Canadians to want to buy less — that pressure on supply will ease.
“We do need to slow the economy,” he said. “We don’t want to over-slow it. We don’t want to make this more difficult than it has to be.”
But at the same time, he said, if they do it in a half-hearted way, it will just prolong the pain.
Won’t it just make it harder to pay my mortgage or utilities and buy necessities like food and gas?
For now, yes. And Sheila Block, senior economist at the Canadian Centre for Policy Alternatives, points out that inflation has a really different impact depending on a person’s income level.
“The cost of food, rent, gas — all of those have paced above the overall [consumer price index] rate,” she told Power and Politics.
“And that is really going to have a tough impact on those lower-income people who spend a larger share of their income on those essentials. And also people who don’t have that kind of cushion to ride this out.”
Could this be the final rate hike from the Bank of Canada?
Sheila Block, senior economist at the Canadian Centre for Policy Alternatives, and Jean-François Perrault, chief economist at Scotiabank, joined Power & Politics Wednesday to discuss the Bank of Canada’s seventh rate hike of the year.
Is hiking interest rates the only way to get inflation down?
Not according to economist Jim Stanford. The director of the Centre for Future Work told CBC News that a broader mix of policies is needed.
“I think that our tool-kit itself needs a more diverse set of tools.”
Stanford says the government needs to introduce longer-term structural policies to address what he calls “the true causes of this inflation” which he says include “supply chains, energy price shocks, and the housing crisis in most parts of Canada.”
Rate hikes have had ‘zero impact’ on inflation, says economist
Jim Stanford, director of the Centre for Future Work says raising interest rates is not the only way to tackle inflation in Canada.
He says raising interest rates will do nothing to help global supply chains.
“In fact, they’ll probably make things a little bit worse because they discourage investment in new capacity and infrastructure by businesses,” he said on the CBC podcast Front Burner.
“What they will do, though, is basically throw a giant bucket of ice water over the entire economy. And we’re already seeing the signs are that we’ve seen a dramatic slowdown in employment growth. We’ve seen a dramatic slowdown in GDP growth. And this is just the beginning.“
He says it would be more effective to try and cool off “the least productive sort of froth in the economy,” such as the housing market. He suggests making better use of rules on mortgage insurance and stress tests “to cool off the property bubble without having to hammer the whole economy with higher interest rates.”
I’m hearing this slowing of the economy could send Canada into recession.
Some economists are indeed suggesting that Canada could be headed for a recession in 2023.
The good news is, he also thinks it won’t be deep or long, citing the country’s strong labour market and low unemployment as reasons why Canada will do better than other countries.
WATCH | Everything you want to know but about a recession but were afraid to ask:
Macklem is optimistic, too.
“This is the biggest test we’ve ever had. But monetary policy works. It takes time to work. And we do have to go through a difficult adjustment.”
But he insists Canada will come out of it.
“Growth will pick up. We’ll have solid employment growth and we’ll have low inflation.”
CHARLESTON, W.Va. (AP) — A linebacker at Division II West Virginia State was fatally shot during what the university said Thursday is being investigated by police as a home invasion.
The body of Jyilek Zyiare Harrington, 21, of Charlotte, North Carolina, was found inside an apartment Wednesday night in Charleston, police Lt. Tony Hazelett said in a statement.
Hazelett said several gunshots were fired during a disturbance in a hallway and inside the apartment. The statement said Harrington had multiple gunshot wounds and was pronounced dead at the scene. Police said they had no information on a possible suspect.
West Virginia State said counselors were available to students and faculty on campus.
“Our thoughts and prayers are with Jyilek’s family as they mourn the loss of this incredible young man,” West Virginia State President Ericke S. Cage said in a letter to students and faculty.
Harrington, a senior, had eight total tackles, including a sack, in a 27-24 win at Barton College last week.
“Jyilek truly embodied what it means to be a student-athlete and was a leader not only on campus but in the community,” West Virginia State Vice President of Intercollegiate Athletics Nate Burton said. “Jyilek was a young man that, during Christmas, would create a GoFundMe to help less fortunate families.”
Burton said donations to a fund established by the athletic department in Harrington’s memory will be distributed to an organization in Charlotte to continue his charity work.
West Virginia State’s home opener against Carson-Newman, originally scheduled for Thursday night, has been rescheduled to Friday, and a private vigil involving both teams was set for Thursday night. Harrington previously attended Carson-Newman, where he made seven tackles in six games last season. He began his college career at Division II Erskine College.
“Carson-Newman joins West Virginia State in mourning the untimely passing of former student-athlete Jyilek Harrington,” Carson-Newman Vice President of Athletics Matt Pope said in a statement. “The Harrington family and the Yellow Jackets’ campus community is in our prayers. News like this is sad to hear anytime, but today it feels worse with two teams who knew him coming together to play.”
DETROIT (AP) — Joe Schmidt, the Hall of Fame linebacker who helped the Detroit Lions win NFL championships in 1953 and 1957 and later coached the team, has died. He was 92.
The Lions said family informed the team Schmidt died Wednesday. A cause of death was not provided.
One of pro football’s first great middle linebackers, Schmidt played his entire NFL career with the Lions from 1953-65. An eight-time All-Pro, he was enshrined into the Pro Football Hall of Fame in 1973 and the college football version in 2000.
“Joe likes to say that at one point in his career, he was 6-3, but he had tackled so many fullbacks that it drove his neck into his shoulders and now he is 6-foot,” said the late Lions owner William Clay Ford, Schmidt’s presenter at his Hall of Fame induction in 1973. “At any rate, he was listed at 6-feet and as I say was marginal for that position. There are, however, qualities that certainly scouts or anybody who is drafting a ballplayer cannot measure.”
Born in Pittsburgh, Schmidt played college football in his hometown at Pitt, beginning his stint there as a fullback and guard before coach Len Casanova switched him to linebacker.
“Pitt provided me with the opportunity to do what I’ve wanted to do, and further myself through my athletic abilities,” Schmidt said. “Everything I have stemmed from that opportunity.”
Schmidt dealt with injuries throughout his college career and was drafted by the Lions in the seventh round in 1953. As defenses evolved in that era, Schmidt’s speed, savvy and tackling ability made him a valuable part of some of the franchise’s greatest teams.
Schmidt was elected to the Pro Bowl 10 straight years from 1955-64, and after his arrival, the Lions won the last two of their three NFL titles in the 1950s.
In a 1957 playoff game at San Francisco, the Lions trailed 27-7 in the third quarter before rallying to win 31-27. That was the NFL’s largest comeback in postseason history until Buffalo rallied from a 32-point deficit to beat Houston in 1993.
“We just decided to go after them, blitz them almost every down,” Schmidt recalled. “We had nothing to lose. When you’re up against it, you let both barrels fly.”
Schmidt became an assistant coach after wrapping up his career as a player. He was Detroit’s head coach from 1967-72, going 43-35-7.
Schmidt was part of the NFL’s All-Time Team revealed in 2019 to celebrate the league’s centennial season. Of course, he’d gone into the Hall of Fame 46 years earlier.
Not bad for an undersized seventh-round draft pick.
“It was a dream of mine to play football,” Schmidt told the Detroit Free Press in 2017. “I had so many people tell me that I was too small. That I couldn’t play. I had so many negative people say negative things about me … that it makes you feel good inside. I said, ‘OK, I’ll prove it to you.’”
VICTORIA – British Columbia‘s Environment Assessment Office has fined Coastal GasLink Pipeline Ltd. $590,000 for “deficiencies” in the construction of its pipeline crossing the province.
The office says in a statement that 10 administrative penalties have been levied against the company for non-compliance with requirements of its environmental assessment certificate.
It says the fines come after problems with erosion and sediment control measures were identified by enforcement officers along the pipeline route across northern B.C. in April and May 2023.
The office says that the latest financial penalties reflect its escalation of enforcement due to repeated non-compliance of its requirements.
Four previous penalties have been issued for failing to control erosion and sediment valued at almost $800,000, while a fifth fine of $6,000 was handed out for providing false or misleading information.
The office says it prioritized its inspections along the 670-kilometre route by air and ground as a result of the continued concerns, leading to 59 warnings and 13 stop-work orders along the pipeline that has now been completed.
This report by The Canadian Press was first published Sept. 12, 2024.
