Inflation is killing us in Canada, a make a good salary and I have to check my spending much more than a mere few months ago.
I can’t imagine how a family with a average or slightly sub average salary is able to stay afloat
We are not. living paycheque to paycheque and using food banks
Yeah. And it’s having no noticeable effect on inflation … it’s almost like they are turning the wrong dial. The people hurting most with these interest rate rises are those who can least afford it and consequently have least effect on inflation.
No surprise here. The Bank of Canada has one tool and they will keep hitting everyone with it until they listen. They want to see something break before they stop. Fiscal policy is counter to monetary policy right now, which isn’t helping. I wouldn’t be shocked if we got one more increase by the end of fall.
Lol @ living outside your means by owning a house right now
I don’t understand the goal or value of these polls/articles. It seems like they are wrong half the time. The last one was wrong: https://www.reuters.com/markets/rates-bonds/boc-hold-rates-this-year-high-risk-least-one-more-hike-2023-06-02/
If someone can explain, that would be nice!
It feels like it’s interest rates as a labor disciplining mechanism at this point (other than the fact that it’s basically the only button they have).
High inflation is far worse for most workers than higher interest rates.
Say that to the people who will eventual default on their mortgages and lose their homes. Economics is the only social science that behaves as if it were a natural science where everything is self-evident. That’s not to say that low interest rate are inherently good but that the mechanism itself that is used to combat any form of inflation is a very limited tool.
Houses got stupid expensive because interest rates were too low. People bought houses uses cheap debt without considering the possibility that interest rates would go up, and bought houses they couldn’t afford. Interest rates never should have been so low in the first place.
without considering the possibility that interest rates would go up
More likely they did consider it, but when the BoC explicitly stated that they would not raise rates…
And the cost of renting was actually exceeding the mortgages, sometimes considerably, and for less quality
That’s a pretty unfair characterization of the situation.
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Rates had been low for quite awhile. Will the rate eventually go up? Of course! But people can only guess when.
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We’re required to consider the possibility of rates going up (the stress test), but I’d thought that for some borrowers we’re already past what they were stress tested against.
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For many, this period of low rates felt like their last chance to get their foot in the door. Whether rates went up or not, it was looking like the barrier to entry (either price or mortgage eligibility) were going up one way or another. You either wait and risk never being able to buy a home (or at least not in the location you want), or buy and risk rates going up. Might some people lose that gamble? Yeah. Pretty easy to understand why they took it though
Yes and that is part of the problem we are paying for now. We should have never had such low interest rates.
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Many people bought homes they could afford, that they needed to live in, after passing a very conservative stress test because that was the way you are supposed to buy a home. Nobody expected the interest rates to more than double in a couple of years. It’s unprecedented. Nobody expected our government to do absolutely nothing about inflation and leave it all to the BoC to fix. You are vilifying and generalizing an entire class of people, most of whom do not fall under the cherry picked description you offered.
Repeat after me: most homeowners are regular people who borrowed responsibly under stringent criteria when they bought their homes.
I agree that it’s unfortunate the central bank can only change interest rates. At the same time, fiscal policy often runs in the opposite direction. I wouldn’t be opposed to giving BoC some control over taxation, within a limited margin. It would give them one more tool so to speak.
I wouldn’t be opposed to giving BoC some control over taxation
Why not just raise taxes, then?
I think that would be a better signal. After all, the poor who drive consumer inflation aren’t given loans and thus don’t feel interest rates directly. Interest rates only directly impact the rich who can shoulder increases for quite a while. And only after they’ve been feeling the pinch for a while will they start to cut spending where the poor are found. It might work eventually, but it is not a quick fix. Taxes can directly impact even the poorest among us right away.
But, of course, the whole reason the central bank assumed the inflation target mandate is because tax increases don’t sit well with the people. It is easier to have a “We tried nothing and we are all out of ideas. It is the central bank’s problem now.” scapegoat in the BoC. Giving them some control over taxes would defeat the purpose of them having the inflation target mandate (a mandate that only goes back to the 1990s).
That said, the BoC has a quantitative tightening lever they can use, in much the same way taxes could be used, to reduce liquidity. They are actively using this lever. Interest rates are not the only knob they have.
why not just raise taxes, then?
Because it’s politically unpopular despite being good fiscal policy. Give some control to the central bank, who aren’t beholden to angry voters.
I still don’t follow the logic. If people want higher taxes to combat inflation, they can simply raise taxes. If they don’t want higher taxes to combat inflation, why would they give power to the BoC to raise taxes to combat inflation?
Because people don’t want higher taxes. Raising taxes is always politically unpopular even if for a valid reason. Politicians often do the opposite, e.g Trudeaus grocery rebate just puts more money into circulation and contributes to inflation. The BoC can operate autonomously from the federal government and could conceivably raise taxes when a politician would not have the political capital to do so.
Maybe/probably but it’s a false dichotomy. Interest rates are only one mechanism for controlling inflation, and a target coarse one.
Consider housing, increasing the interest rates makes it harder to buy a house, but it also makes it harder to build a house. Since this inflationary spiral we seem to be getting sucked into is at least partly (probably mostly) tied to restricted supply of “the stuff to buy” side if the balance, prolonged high interest rates could lead to stagflation.
This same high inflation also effects capital spending at any company seeking to expand production.
I’m not an economist, and I’m sure you’d get three different answers from two different economists, but I’m thinking we’re getting into that tickle point where interest rate hikes might start putting us into stagflation. Fundamentally, central banks aren’t going to fix this global inflation problem by playing with interest rates. You’re dealing with a real loss in production wrt the pandemic, and now a major land war in a highly agriculturally productive area of the world.
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Raising rates seems to do two things to housing:
- encourage targeting luxury housing - if you’re rich, prices aren’t as important
- encourage selling to larger landlords - more apartments, fewer condos/townhouses
Builders are still going to build, they just need to target people who can afford the higher prices.
Looking at the construction industry in Quebec, builders aren’t building anything… There’s zero clients right now…
