Residential Market Commentary - Predicting rising rates

There is broad agreement among market watchers that the Bank of Canada’s next interest rate move will be up. The question that is: When.

Expectations are growing that there will be a quarter-point increase by the end of this year.  Some analysts say it could happen this week.

The latest figures from Statistics Canada put inflation at 3.1%.  That is below expectations, but above the central bank’s preferred 1.0% to 3.0% range.  Those who are predicting a rate increase point out that the current rise in inflation is being driven by higher energy costs as a result of the wars in Iran and Ukraine.  They say the price pressure on energy is persistent and increasing, and threatens to spread into other parts of the economy.  They also cite the Bank of Canada’s latest business and consumer surveys which show inflation expectations are rising.

The BoC has made it clear that it is prepared to raise interest rates to fight inflation and Governor Tiff Macklem has cautioned against waiting too long before increasing rates.

Most analysts, though, say the Bank still has time, even if it wants to act preemptively against inflation.  The argument against an imminent rate increase focuses on Canada’s slow and weak economic growth, and the latest employment numbers which show the jobless rate has increased to 6.5%.  Core inflation (the BoC’s preferred measure) remains near the Bank’s 2.0% target.

They also point out that, currently, inflation is a worldwide problem and increasing interest rates at home will not remedy the global situation.