Wednesday July 12, 2023 | VICTORIA, BC [Updated 11:15 am PDT]
by Mary P Brooke | Island Social Trends
Summary: Restoring price stability, but at what cost. Big picture, things perhaps are heading in the right direction (i.e. lowering inflation) but relentless rate hikes have damaged many households and the small business sector in ways that may not allow recovery.
Another interest rate increase, more pressure for Canadian households and businesses. That’s what the country has woken up to this morning.
At 7 am (PDT) the Bank of Canada announced an interest rate increase of another 0.25%, bringing the overnight rate to 5%. The Bank Rate is now at 5¼% and the deposit rate at 5%.
The Bank said it is continuing its policy of quantitative tightening, being determined to use this one blunt tool of interest rate adjustment in an effort to control inflation.
The Bank’s inflation target is to see it sit somewhere between 2% and 3%.
Today’s increase is the 10th within the past 16 months (since March 2022): there were seven increases in 2022, an eighth in January 2023, the ninth last month, and now today. The rate increase last month (on June 7) was also by 25 basis points to 4.75%.
These might seem like small increases, but it further tightens the screws on people who can afford it least. Economists with the long-term view say that the full impact of these rate increases aren’t seen or felt until six to eight quarters (i.e. 18 to 24 months) afterward.
In the immediate sense, the cost to carry debt increases. That includes mortgages and lines of credit, and usually often also credit cards. It also means that the higher cost of everything will filter through the economy, making the cost of most things higher yet again.
Live comments:
Bank of Canada Governor Tiff Macklem says:
- “It’s clearly too early to be talking about interest rate cuts”.
- “There is not a big benefit in waiting (to increase rates).”
- About half the items in Canada’s #CPI basket (including meat & bread) have gone up over 5% while #food costs have gone up 9% overall, rent up 6%, services up 5%, hotels 13%, restaurants up 7%.
Pent-up savings (continued spending) and robust immigration (more consumers, renters, homebuyers) are two pressures that Macklem feels are contributing to the unexpected responses in the economy.
Bank of Canada Senior Deputy Governor Carolyn Rogers, says:
- “The most vulnerable Canadians are hurt the most by inflation and interest rates… we never make a decision lightly.”
- “It’s not overhype for people who are feeling it, it’s real.”
It’s interesting that this should have to be emphasized in response to a financial sector media question, but it’s the sort of talk one rarely if ever heard from bankers in the past which shows some acknowledgement of how broad monetary policy impacts individuals and families.
Impact on households:
People who are on fixed incomes and carrying a lot of household or personal debt will now see their disposable income even further eroded.
Affordability measures may need to be taken by various levels of government. This year already the federal government has doubled the GST credit (calling the July 5 credit a ‘grocery rebate’) and in the past year the BC Government has delivered a range of affordability credits.
This week BC Premier David Eby said he “dreads” the impact of an increased cost of living on those who can afford it least.
Federal NDP Finance Critic Daniel Blaikie said after today’s rate increase announcement: “Canadians have been staring down difficult economic times for years now and it is taking a toll. Mortgage payments, rent, utilities and groceries are all more difficult to afford than they were just a few years ago. The unrelenting pace of interest rate hikes by the Bank of Canada is only making it harder.”
Old thinking:
This standard approach by Bank of Canada based on monetary policy from a previous century. This will unbalance the lives of many Canadian households and small businesses, in many cases to a point of no return.
When individuals and families are pushed out of the economic system they become dependents of the system, which carries its own cost.
===== ABOUT THE WRITER:
Mary P Brooke has been writing insight-news since 2008. Her publication series has covered news of the day through broader socioeconomic and political insights in the west shore region as well as key sociopolitical and socioeconomic issues of today’s society, as published by Brookeline Publishing House Inc under these mastheads: MapleLine Magazine (2008-2010), Sooke Voice News (2011-2013), West Shore Voice News (2014-2020), and Island Social Trends (since 2020).
The Island Social Trends print edition (previously West Shore Voice News) launches later in July 2023, after a three-year hiatus during the pandemic years, while continuing here online at IslandSocialTrends.ca. The print-bound copies of MapleLine Magazine, Sooke Voice News and West Shore Voice News are already part of the permanent collections at the Sooke Region Museum.
Ms Brooke now reports with the BC Legislative Press Gallery, as part of delivering regional news on Vancouver Island.
This year, Mary P Brooke has been nominated for the Jack Webster Foundation Shelley Fralic Award to recognize a professional female journalist whose journalism makes a contribution to the community.
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