How rising interest rates will cool inflation, settle the housing market down and reward savers - The Globe and Mail | Canada News Media
Connect with us

Business

How rising interest rates will cool inflation, settle the housing market down and reward savers – The Globe and Mail

Published

 on


Rising interest rates will make life harder for a lot of us, but do we ever need them.

Low rates are cheap calories and our financial system has gone soft on them. Higher rates are like a fitness regime that will help us get back into shape.

Rates could rise as soon as Wednesday, which is the next opportunity for the Bank of Canada to adjust its trendsetting overnight rate. The next two openings for the bank are March 2 and then April 13, with five more over the rest of the year.

The overnight lending rate is 0.25 per cent right now, the emergency low it was reduced to during the worst of the pandemic. Economists expect multiple increases this year, with Bank of Nova Scotia forecasting that the overnight rate will be 2 per cent by year’s end.

Higher rates add to the strain on households that have been hit hard financially in the pandemic. In a recent Angus Reid poll of 5,002 people, 39 per cent said they are worse off than they were last year. In 13 years of running this poll, there has never been a higher percentage saying they are worse off.

One-quarter of poll participants believe an increase in rates would have a major negative effect on their household finances. But higher rates are needed to create economic stability that will benefit these households and others.

One thing higher rates can do to help us all is tamp down inflation, which lately hit a 30-year high at 4.8 per cent. “Higher interest rates encourage saving and discourage borrowing and, in turn, spending,” the Bank of Canada says in one of its publications. “In response, companies increase their prices more slowly or even lower them to encourage demand.”

Recent inflation has been linked to supply-chain kinks caused by the pandemic, but pent-up demand from households that were unable to spend normally during lockdowns has also been a factor. Unfortunately, it takes a while for rate increases to do their work. That means an interim period of rising interest rates and high inflation, a two-pronged attack on household budgets.

Surging residential real estate prices illustrate how the housing market is literally begging for higher rates. Without some sort of limiting force – rate hikes, taxation, tighter borrowing standards – house prices seem as if they will rise until either the last shreds of affordability disappear or we have a recession. Higher rates could slow the market down, thereby avoiding more extreme outcomes like a full-blown correction.

People have been cautious about adding to debt other than mortgages since the pandemic began, but the national debt-to-disposable-income ratio was a very high 177.2 per cent in fall of 2021. We’ve grown comfortable with this extreme level of indebtedness because interest rates are so low. Higher rates should be a prompt to reduce debt levels and thereby put households in stronger shape for financial challenges ahead.

Media coverage of the ups and downs of interest rates tends to focus on borrowers, which makes sense because they’re more sympathetic as young home and car buyers, people renovating their homes using credit lines or treating themselves to a trip or splurge. But savers and conservative investors are also affected, and they need higher rates in a big way.

Don’t sneer at these people for not scooping up the huge returns from stocks or crypto currencies in the past two years. We all need money kept safe for emergencies or short-term savings goals.

Rates for savers have been suppressed by the Bank of Canada as part of its efforts to support the economy. When the central bank starts raising rates, savers will gradually receive a better return on their money.

Higher rates are nasty for the bonds and bond funds in your investment portfolio because they push down bond prices. But if you have new money to add, you’ll find that yields have improved a fair bit. If you bought an exchange-traded fund tracking the broad Canadian bond market right now, you could expect a yield of 2.2 per cent after fees. A year or so ago, you were looking at 1.4 per cent.

Many investors have been cutting back on bonds or avoiding them because of low interest rates. Don’t give up on bonds. They are necessary for many investors to offset the risk of stocks crashing.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.

Adblock test (Why?)



Source link

Continue Reading

Business

Carry On Canadian Business. Carry On!

Published

 on

business to start in Canada

Human Resources Officers must be very busy these days what with the general turnover of employees in our retail and business sectors. It is hard enough to find skilled people let alone potential employees willing to be trained. Then after the training, a few weeks go by then they come to you and ask for a raise. You refuse as there simply is no excess money in the budget and away they fly to wherever they come from, trained but not willing to put in the time to achieve that wanted raise.

I have had potentials come in and we give them a test to see if they do indeed know how to weld, polish or work with wood. 2-10 we hire, and one of those is gone in a week or two. Ask that they want overtime, and their laughter leaving the building is loud and unsettling. Housing starts are doing well but way behind because those trades needed to finish a project simply don’t come to the site, with delay after delay. Some people’s attitudes are just too funny. A recent graduate from a Ivy League university came in for an interview. The position was mid-management potential, but when we told them a three month period was needed and then they would make the big bucks they disappeared as fast as they arrived.

Government agencies are really no help, sending us people unsuited or unwilling to carry out the jobs we offer. Handing money over to staffing firms whose referrals are weak and ineffectual. Perhaps with the Fall and Winter upon us, these folks will have to find work and stop playing on the golf course or cottaging away. Tried to hire new arrivals in Canada but it is truly difficult to find someone who has a real identity card and is approved to live and work here. Who do we hire? Several years ago my father’s firm was rocking and rolling with all sorts of work. It was a summer day when the immigration officers arrived and 30+ employees hit the bricks almost immediately. The investigation that followed had threats of fines thrown at us by the officials. Good thing we kept excellent records, photos and digital copies. We had to prove the illegal documents given to us were as good as the real McCoy.

Restauranteurs, builders, manufacturers, finishers, trades-based firms, and warehousing are all suspect in hiring illegals, yet that becomes secondary as Toronto increases its minimum wage again bringing our payroll up another $120,000. Survival in Canada’s financial and business sectors is questionable for many. Good luck Chuck!. at least your carbon tax refund check should be arriving soon.

Steven Kaszab
Bradford, Ontario
skaszab@yahoo.ca

Continue Reading

Business

Imperial to cut prices in NWT community after low river prevented resupply by barges

Published

 on

 

NORMAN WELLS, N.W.T. – Imperial Oil says it will temporarily reduce its fuel prices in a Northwest Territories community that has seen costs skyrocket due to low water on the Mackenzie River forcing the cancellation of the summer barge resupply season.

Imperial says in a Facebook post it will cut the air transportation portion that’s included in its wholesale price in Norman Wells for diesel fuel, or heating oil, from $3.38 per litre to $1.69 per litre, starting Tuesday.

The air transportation increase, it further states, will be implemented over a longer period.

It says Imperial is closely monitoring how much fuel needs to be airlifted to the Norman Wells area to prevent runouts until the winter road season begins and supplies can be replenished.

Gasoline and heating fuel prices approached $5 a litre at the start of this month.

Norman Wells’ town council declared a local emergency on humanitarian grounds last week as some of its 700 residents said they were facing monthly fuel bills coming to more than $5,000.

“The wholesale price increase that Imperial has applied is strictly to cover the air transportation costs. There is no Imperial profit margin included on the wholesale price. Imperial does not set prices at the retail level,” Imperial’s statement on Monday said.

The statement further said Imperial is working closely with the Northwest Territories government on ways to help residents in the near term.

“Imperial Oil’s decision to lower the price of home heating fuel offers immediate relief to residents facing financial pressures. This step reflects a swift response by Imperial Oil to discussions with the GNWT and will help ease short-term financial burdens on residents,” Caroline Wawzonek, Deputy Premier and Minister of Finance and Infrastructure, said in a news release Monday.

Wawzonek also noted the Territories government has supported the community with implementation of a fund supporting businesses and communities impacted by barge cancellations. She said there have also been increases to the Senior Home Heating Subsidy in Norman Wells, and continued support for heating costs for eligible Income Assistance recipients.

Additionally, she said the government has donated $150,000 to the Norman Wells food bank.

In its declaration of a state of emergency, the town said the mayor and council recognized the recent hike in fuel prices has strained household budgets, raised transportation costs, and affected local businesses.

It added that for the next three months, water and sewer service fees will be waived for all residents and businesses.

This report by The Canadian Press was first published Oct. 21, 2024.

The Canadian Press. All rights reserved.

Source link

Continue Reading

Business

U.S. vote has Canadian business leaders worried about protectionist policies: KPMG

Published

 on

 

TORONTO – A new report says many Canadian business leaders are worried about economic uncertainties related to the looming U.S. election.

The survey by KPMG in Canada of 735 small- and medium-sized businesses says 87 per cent fear the Canadian economy could become “collateral damage” from American protectionist policies that lead to less favourable trade deals and increased tariffs

It says that due to those concerns, 85 per cent of business leaders in Canada polled are reviewing their business strategies to prepare for a change in leadership.

The concerns are primarily being felt by larger Canadian companies and sectors that are highly integrated with the U.S. economy, such as manufacturing, automotive, transportation and warehousing, energy and natural resources, as well as technology, media and telecommunications.

Shaira Nanji, a KPMG Law partner in its tax practice, says the prospect of further changes to economic and trade policies in the U.S. means some Canadian firms will need to look for ways to mitigate added costs and take advantage of potential trade relief provisions to remain competitive.

Both presidential candidates have campaigned on protectionist policies that could cause uncertainty for Canadian trade, and whoever takes the White House will be in charge during the review of the United States-Mexico-Canada Agreement in 2026.

This report by The Canadian Press was first published Oct. 22, 2024.

The Canadian Press. All rights reserved.

Source link

Continue Reading

Trending

Exit mobile version