Wednesday December 6, 2023 | VICTORIA, BC [NATIONAL NEWS]
by Mary P Brooke | Island Social Trends
While not entirely unexpected, holding the benchmark interest rate at 5% was a welcome relief for many across Canada today.
This morning’s announcement from the Bank of Canada means that anyone with a variable rate mortgage, line of credit or other borrowing arrangement based on the bank’s posted rate will not automatically see an increase in what they pay in interest.
But the 10 interest rate increases since March 2022 have ground down the economy, notably diminishing people’s inclination to spend on new consumer goods or beyond their means on bigger items like housing.
The rate has been at 5% since July of this year.
In recent months, the Bank’s preferred measures of core inflation have been around 3½-4%, with the October data coming in towards the lower end of this range.
There was no media availability for today’s Bank of Canada’s pre-scheduled announcement. That was an early sign that ‘no news is good news’.
Impact on households:
The Bank of Canada claims to have been sensitive to the impacts on Canadian households and small businesses, but the impact of increased interest rates has made life significantly unaffordable for many people in many areas of their lives — including housing and groceries.
“Shelter price inflation has picked up, reflecting faster growth in rent and other housing costs along with the continued contribution from elevated mortgage interest costs,” said the Bank of Canada in their December 6, 2023 release.
The bank has been signalling recently that it thinks it may be nearing the end of the extended rate-hike cycle but continues to warn that it will still increase rates if inflation does not continue to soften.
Food bank usage has been up in these challenging times — over 2 million Canadians used a food bank in the month of March 2023.
Inflation is cooling:
The interest rate was 8.1% in June 2022, and most recently had fallen to 3.1% in October 2023.
The Canadian economy shows signs of cooling, which the Bank of Canada takes credit for by having rapidly increased interest rates to put the brakes on inflation.
“The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices,” the bank said in announcing its decision.
The central bank says the global economy is continuing to slow, and believes that their application of higher interest rates are working as intended. In Canada, economic growth stalled through the middle quarters of 2023, the Bank says.
Blaming consumer spending:
“The economy is no longer in excess demand,” the bank said in their December 6, 2023 news release. That means they’re not seeing as much consumer spending on discretionary items, especially big-ticket items like furniture and vehicles.
The Bank of Canada has mentioned several times over the past year and a half that households spending their built-up savings from the pandemic period of 2020-2021 have been a large factor in creating and fuelling inflation.
Corporate behaviour:
Back in October, Bank of Canada Governor Tiff Macklem said that “corporate behaviour” was a key part of the inflationary problem.
Macklem went so far as to say that the corporate behaviour of pushing up prices — and frequently — is a “risk factor” when looking at the overall program of getting inflation back under control.
Still aiming for 2 to 3% range:
“The Bank remains resolute in its commitment to restoring price stability for Canadians,” as stated in today’s news release, which means they are still aiming for inflation to become stable in the range of 2% to 3%.
The next scheduled date for announcing the overnight rate target is January 24, 2023
===== RELATED:
Bank of Canada: Food price inflation coming down with a lag (October 25, 2023)
Bank of Canada holds interest rate steady (September 6, 2023)