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What the latest Bank of Canada rate hike means for inflation, consumers

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By Tara Deschamps

The Bank of Canada hiked its key policy rate by half a percentage point to 4.25 per cent — the highest it’s been since January 2008 — on Wednesday in its final rate decision of a year that has been marked by stubbornly high inflation and rapidly increasing interest rates.

The bank, which has made a steady succession of large hikes over the course of the year, is widely believed to be nearing an end to the increases.

In announcing the rate hike Wednesday, the bank said it will consider whether the rate “needs to rise further to bring supply and demand back into balance and return inflation to target.”

Here’s a look at what the rate means, how analysts are interpreting it and what it could mean for consumers.

What is the key policy rate and what does it do?

The key policy rate, also known as the target for the overnight rate, is how much interest the Bank of Canada wants commercial banks to charge when lending each other money overnight to settle daily balances.

Knowing how much it costs to lend money, or deposit it with the central bank, helps set the interest rates charged on things like loans and mortgages.

Lowering the rate generally makes borrowing money more affordable, while raising it makes such activities more expensive.

Why is the bank using the rate to target inflation?

Inflation is a measure of how much prices of goods and services are rising or falling. High inflation is a sign of an economy that’s overheating.

Canada’s annual inflation rate reached a peak of 8.1 per cent in June, the highest level in four decades.

It has eased since then, reaching 6.9 per cent in September, but didn’t budge in October. And shoppers have seen higher prices for common expenses like groceries. Grocery prices have been rising at the fastest pace in decades and were 11 per cent higher in October than they were a year ago.

Economists and the central bank want to see a further easing, which is why interest rates have been rising so quickly in the hope of cooling consumer spending patterns.

“Inflation is still too high and short-term inflation expectations remain elevated,” the bank said in its announcement. “The longer that consumers and businesses expect inflation to be above the target, the greater the risk that elevated inflation becomes entrenched.”

What does this mean for my mortgage?

Mortgage rates tend to increase or decrease in tandem with interest rates.

When Canadians buy homes there are two kinds of mortgages they can select — fixed rate or variable. Fixed-rate mortgages allow borrowers to lock in the interest rate they will pay for a set amount of time, while variable-rate mortgages can fluctuate.

Allison Van Rooijen, vice-president of consumer credit at Meridian Credit Unit, estimates the rate hike Wednesday will bump payments on a $450,000 variable-rate mortgage on a 25-year amortization up another $130 or so every month. Since the beginning of 2022, rising rates have amounted to roughly $1,000 more per month since the beginning of 2022.

“Because of the high cost of housing in Canada and years of low borrowing rates, Canadians are carrying record-levels of debt on mortgages and lines of credit, so it’s really important that people go through their expenses and look to scale back discretionary spending where they can,” she said in an email.

She recommends people double down on efforts to pay off debt with higher interest rates as much as possible and if they are running into trouble making payments, discuss whether switching to another format of mortgage is right for them.

Does this mean interest rates will stop rising soon?

Shortly after the announcement, many economists predicted the bank isn’t done with hikes yet, even though the language in the statement signalled the possibility of holding steady at 4.25 per cent.

BMO Capital Markets chief economist Douglas Porter said a further hike of about 25 basis points is likely still to come because he’s concerned about the “stickiness of underlying inflation.”

James Orlando of TD Economics agreed. He expects the bank will deliver its final rate hike for the foreseeable future in January, bringing the measure to 4.5 per cent.

“We don’t think the Bank of Canada is done yet, but it is quickly approaching the end of its hiking cycle,” he wrote in a note to investors.

“As all Canadians know, the rapid rate hikes over 2022 have caused a dramatic adjustment in the real estate market, and we are starting to see this in consumer spending data. We expect this to continue to weigh on the economy over 2023 as the lagged effects of past hikes filter through.”

This report by The Canadian Press was first published Dec. 7, 2022.

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Immigration increase alone won’t fix the labour market, experts say

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By Rosa Saba

Experts say Canada’s plan to increase immigration may ease some pressures in the labour market, but bigger changes are needed to ensure new permanent residents are matched with the jobs that most need filling.

With the unemployment rate at historic lows, many companies are “starved” for workers, and new immigrants will help fill some of the need, said Ravi Jain, principal at Jain Immigration Law and co-founder of the Canadian Immigration Lawyers Association.

The federal government’s new immigration plan calls for the admission of 1.45 million more new permanent residents over the next three years, beginning with 465,000 in 2023 and reaching 500,000 in 2025. That’s compared with 341,000 in 2019.

According to Immigration, Refugees and Citizenship Canada, the plan is intended to help attract labour in key sectors, including healthcare, skilled trades, manufacturing and technology.

“It’s clear that there are real gaps, real demands, and real needs,” said Naomi Alboim, a senior policy fellow at Toronto Metropolitan University and a former Ontario Deputy Minister of Immigration.

But upping immigration levels is just one way to begin addressing those needs, she said — the government’s plan should be part of a wider initiative to address temporary workers, international students and a larger range of jobs.

Change is needed to ensure new Canadians are well-matched to jobs that maximize their skills, qualifications and experience, said Alboim.

Recent immigrants are less likely to see their skills and education utilized than Canadian-born workers, Statistics Canada said, and new and recent immigrants are overrepresented in certain industries, including transportation and warehousing, and accommodation and food services.

Government policies have created a mismatch between the specific skills employers are looking for and the skills of immigrants being approved, Toronto immigration lawyer Sergio Karas said.

Some of this mismatch begins with international students, said Karas. Though many international students plan to become permanent residents after they graduate, many of them aren’t in programs for jobs that are in demand by immigration policies, like healthcare or trades, he said.

International students and temporary foreign workers (TFWs) have made up an increasingly large portion of Canada’s economic immigrants, or those selected for their contribution to the economy, who made up more than half of recent immigrants in 2021, Statistics Canada said.

In 2020, 67 per cent of the country’s principal applicants in the economic class were previously temporary foreign workers or international students, the agency said.

But that 67 per cent is a relatively small portion of all the temporary workers and international students in Canada, said Alboim. Canada had 777,000 TFW work permit holders in 2021, and almost 622,000 international students that year, Statistics Canada said.

Canada’s dependence on temporary workers to fill long-term gaps is a huge problem, said Alboim. It creates little incentive to improve wages, conditions or supports for temporary workers, she said.

Federal immigration policy seems laser-focused on jobs requiring higher levels of training and education, said Alboim, a barrier to permanent residency for many TFWs and international students.

That’s despite the fact that much of Canada’s labour shortage is in jobs that require lower levels of education or experience, jobs that many temporary workers and students take on, said Alboim.

The federal government should expand its scope to prioritize more of these kinds of jobs, she said.

“There are way, way, way more people here now with temporary status that will never be able to transition to permanent residency, assuming they want to, unless the rules for permanent residency are changed to recognize that we actually need them too,” she said.

However, not all the onus lies on the federal government, Jain said. One ongoing problem has been immigrants’ credentials not being recognized in Canada, and while there have been some recent changes aimed at improving that, more needs to be done, he said. These credentials are the jurisdiction of provinces and territories, not Ottawa.

Provincial and regional immigration programs often do a better job of bringing in workers who can meet a wide range of labour needs including in lower-skill jobs, Alboim said, noting those programs are set to increase under the federal government’s plan.

A legislative amendment recently gave the minister of immigration the power to select immigrants for Express Entry programs based on specific qualities like occupation, but currently Alboim anticipates that use of that power will be focused on higher-level jobs.

“(There are) real needs at the high end, which immigration should certainly be focused on, but not exclusively,” she said.

Jain agreed.

“My worry is that if the targeted draws get too heavy, like if it’s weighted too much in terms of the proportion of people coming in, then I worry that some of these other folks will get marginalized,” he said.

“There needs to be some kind of a balance.”

— With files from Lee Berthiaume

This report by The Canadian Press was first published Jan. 19, 2023.

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Alberta

Popular roller-coaster at West Edmonton Mall amusement park to be removed

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Canada’s largest shopping centre says a popular roller-coaster at its amusement park is being removed after nearly 40 years in operation.

West Edmonton Mall’s vice-president of parks and attractions says in a statement that while the Mindbender will be missed, the mall is excited to announce it is working on new plans for the site.

The Mindbender was known as the world’s tallest and longest indoor, triple-loop roller-coaster.

In 1986, three people were killed on the roller-coaster, which forced the mall to shut it down for a year for safety modifications.

Galaxyland initially opened in 1983, but was known as Fantasyland until 1995.

The indoor amusement park partnered with Hasbro in 2022 and features attractions licensed from the franchise.

This report by The Canadian Press was first published Jan. 30, 2023.

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