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Canada’s inflation rate came in at disappointing 4.41% for April, compared to 4.3% for the month of March. This minimal change has led to a resurgence of fear that the Bank of Canada will continue its increase to policy rates. Any increase to policy rates results directly affects those holding Variable and Adjustable mortgages or lines of credit (both secured and unsecured.)

Based on this recent data, the consensus is that the policy rate will either be held where it is, or increase by 0.25%. If the Bank of Canada was to increase PRIME by 0.25%, this would result in a $13 increase to a borrower’s monthly payment for every $100,000 of mortgage or loan outstanding.

While determining where interest rates are going is a collection of economic and statistical data, there are several things we can say for sure: 

1) Previous Rate Increases Not Yet Felt: It takes approx. 12 months for interest rate increases to be “felt” by the economy. This means that to date the economic data is only reflecting 2 of the last 13 increases. As each month goes by, we can expect the larger increases to have a more dramatic impact on bringing down inflation.

2) Savings: Throughout the Pandemic many households were able to increase savings. This has led to households not only being able to manage with higher interest rates, but also continuing to spend on the luxuries and travel they missed out on during the pandemic lock-downs. 

3) Recession Indicators: Several indicators that tell us where economic activity is going (leader indicators) have begun to show declines. This includes manufacturing orders, copper, and specific sectors of employment.

As all of these factors continue to put pressure on the economy over time, inflation and resulting interest rates will fall. However, given the 13 increases we saw to PRIME interest rates over the last 16 months, many borrowers are at their emotional and financial limits.

For clients in these positions we have begun to look into short-term Fixed rates options. This allows many to weather the current storm without any further surprise. 

If you have any questions, please don’t hesitate to reach out to us directly either by e-mail ([email protected]), or by booking a Consult at HarmerWealth.com