Canada’s inflation rate rocketed to four per cent in August, announcing a rise from the previous 3.3 per cent in July, according to Statistics Canada. Economists attribute this increase to the mounting costs of food and gas prices, and the swelling mortgage interest rates.
The country’s most recent financial update is neither surprising nor encouraging. Experienced financial journalist, Bryan Borzykowski, points out that the inflation rate keeps hiking, a trend that defies the Bank of Canada’s aim to cap it at around two per cent. Back in June, the figure was more benign, at 2.8 per cent.
High food prices have made a significant contribution to the inflation upturn. Despite the Statistics Canada’s Consumer Price report revealing that the year-on-year grocery prices have somewhat stabilized, they persist at an elevated level. These prices have decreased gradually over the past couple of months, yet the costs are still substantially high, says Borzykowski.
Other factors accelerating inflation are the surging price of gas, and rising mortgage interest costs. Notably, mortgage interest costs are edging up due to climbing interest rates instigated by the Bank of Canada’s efforts to curtail inflation.
While it seems paradoxical that these attempts to regain control of inflation have inadvertently contributed to it, Borzykowski identifies these three elements as the prime drivers of inflation.
Borzykowski navigates the question about potential interest rates hikes, explaining that the Bank of Canada generally ups the rates to ease the demand on the economy. When it costs more to borrow or if more funds are sunk into mortgages, it means less spending in other sectors. This method can effectively slow economic growth. Predictably, the Bank of Canada might pause on raising rates for the time being, allowing the recent hike to filter through the economy.
However, a potential increase in interest rates would nudge mortgage renewals up. For instance, if interest rates continue in their upward trajectory, the onus to adapt to higher rates will fall on borrowers, especially those with variable rate mortgages who would have to pay a higher rate instantaneously.
Borzykowski underlines that the Bank of Canada maintains independence from governmental influence, making financial decisions solely in the interest of the economy’s health. Political intervention in these decisions could pose a risk to the economy.
As for the anticipation around the central bank’s next move, eyes are now fixed on Oct. 25 when it will announce its latest decision on interest rates.
