Dip In Inflation Won’t Stop Rate Hikes…But It’s For Your Own Good, Dear…

The latest Statistics Canada report, released Tuesday, shows April retail figures coming in lower than those posted in March. Canada’s annual inflation rate dropped to 1.4 per cent in May from 1.8 per cent in April, mainly due to falling gas and clothing prices. The cost of a new golf shirt and a pair of flip flops should continue to drop, just like the cost of the gas that will get us to Walmart to buy them. And we’ll be glad of that because the money we save on buying our board shorts and ball caps will go to paying slightly higher interest rates on our credit cards and mortgages.

Economists are saying that the inflation levels, although not quite as aggressive as was anticipated, are still at healthy levels to encourage the Bank of Canada to stay on pace with it’s rate hiking schedule when it meets on July 20th.

Why would that be if the economy is not barreling wildly, headlong into sky-high inflation?
Well, according to an article the Globe and Mail, some economists are suggesting that the Bank of Canada doesn’t base it’s decisions about monetary policy on inflation alone. It also takes into account the current credit habits of the average citizen and the historically low interest rates that were instituted in response to the credit crisis have made borrowing a little too attractive. In response, the Bank of Canada will most likely stay the course with the anticipated rate increases in an effort to protect you from yourself. A little “nanny state” perhaps, but carrying huge debt loads obtained with abandon when rates are low can prove to be devastating when inflation does gain a stronger foothold. I don’t mind a bit of babysitting as long as they let me eat chips and stay up late to watch Kimmel.

The good news is that some economists are saying that although the rates will increase, the pace could be fairly slow. The U.S Federal Reserve Board is beginning a two day meeting today and the possibility of deflation will be discussed. It is expected to hold it’s zero interest rate policy for the time being while European governments are implementing aggressive budget and austerity packages which will also likely contribute to slowing the overall growth of the economy.

Slowly rising rates make a good argument for choosing the variable or adjustable rate mortgage. Contact one of our knowledgeable Mortgage Brokers today to find our what type of mortgage rate fits you best.