Canadian Inflation Is At A Record High, And The Blame Lies Close To Home

Canadian Inflation Is At A Record High, And The Blame Lies Close To Home
Carl Hazeley

over 1 year ago1 min

Source: abrdn, Statistics Canada

The Bank of Canada’s preferred way to measure inflation doesn’t take into account energy prices, but it still found its way to a record high in May. That’s partly down the country’s house prices, which are up 40% since the pandemic began and have, in turn, helped drive household debt to its own record high.

That’s put the economy in a vulnerable position. Canada’s central bank has already hiked interest rates by 0.5 percentage points twice, and it’s expected to up them again by 0.75 percentage points in July. Investors don’t think it’ll stop there either: they’re betting the central bank’s key rate will go from 1.5% today to 3.5% by the end of the year. And as Stéphane explained recently, it’s the housing market that will feel the pain first.

In fact, those higher rates have already reduced the number of homes sold in the country each month, and it won’t be long before homeowners who aren’t looking to move feel the pinch too. After all, Canadians tend to have much shorter fixed terms on their mortgages than, say, the 30-year deals available in the US, which means those higher rates are going to hit all homeowners when they come to remortgage. That’ll heap even more pressure on the housing market, with the potential to send house prices tumbling. And if that happens, that mountain of debt will become even riskier…

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