The Bank of Canada raised its benchmark interest rate for the first time in more than three years on Wednesday as it tries to get ahead of looming price hikes.
Already plagued by the rising costs of gas and groceries, consumers will feel the hit.
“A consumer who holds about $200,000 in a variable rate mortgage or a variable-rate home equity line of credit, they will feel about $500 worth of interest cost annually as relates to this,” Lara Stilin, chief financial officer at Your Neighbourhood Credit Union (YNCU), told Global News.
While Wednesday’s hike is less significant than the series of increases issued following the COVID-19 pandemic, experts say people who are already struggling to make ends meet with rising inflation will feel the burden first.
Inflation ticked up to 3.1 per cent in September, which the Bank of Canada has largely attributed to high gas prices.
The central bank now expects annual inflation will hit 3.5 per cent at the end of this year before gradually easing to around two per cent by mid-2028.
Food inflation is expected to average around four per cent in 2027, up about a half a percentage point from this year.
“I’m more worried about households that have already stopped eating out, put off big purchases and dipped into their savings, and are still coming up short. For them, another increase doesn’t mean finding one more thing to cut. It means deciding which bill gets paid this month and which one waits until next month,” Kristy Rachkowski, chief member experience officer at YNCU, said in a statement.
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Bank of Canada Governor Tiff Macklem said Wednesday inflation is likely to be “more persistent.”
“And I think when you look at it through that risk lens, that also tilted in favour of raising the policy rate now,” he said.
What experts say is more concerning for Canadians, is if they can expect more hikes to follow.
“Is this the first of many, or is this first of a few, or is this the first and last, which is still I’d say, unclear right now as the economic situation evolves,” Stilin said.
Macklem said the central bank will take its upcoming rate decisions “one meeting at a time” but also suggested future hikes are still in the cards.
“There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully,” he said.
Charles St-Arnaud, chief economist at Servus Credit Union, said in a note to clients that he expects the central bank will deliver back-to-back hikes to end the year with a policy rate of 2.75 per cent.
He said only a weakening economy or softer than expected inflation will prevent a future hike.
Stilin said the majority of Canadians may not need to worry just yet, but said it is prime time to make sure you understand your own budget and the flux space you have within it.
“If you are already feeling the pinch with rising fuel prices, rising grocery prices, now is the time to act,” she said.
Ms. Stilan, how would you like those that are already “feeling the pinch” and “adjusted their budget” to prepare?
Well, the interest will likely cause inflation to rise as people go further into debt to uphold failed liberal strategies and ideologies while the price of oil continues to rise as the world’s elites have decided it best to sit on their hands and let Trump hang himself.
Those that embrace “associate’s” membership with the EU over a deal with the USA are fools. Must parents left Europe because of draconian Govt over there.
Regardless of what the BoC does or Canada becoming an associate member of the EU or not, it’s all been planned that prices will again double and triple to push Canadians into poverty and working slavery. That is the socialists’ end goal.
Here come more higher prices. I heard the EU demanded that Carney ban all plastics and implement a 50 cent a litre carbon tax. So if that’s true what is Carney going to do now.
Here come more higher prices. But let’s not forget Carney has said Canadians have never had it so good well if this is good I don’t want to see bad. Now I have heard the EU voted down Canada becoming an associate member so if that’s true what is Carney going to do now.
Just ask Ben, he’ll tell you everything is just fine, same answer for absolutely anything and everything
Yeah. I see. I undertand. Yeah. Fine. Alsjcjksksmcjjdka1328″?!#
Better buy more hamburger helper. Affordability is getting worse. Carney’s deficits directly raise inflation which is combatted with higher interest rates. Are you renewing your mortgage right now like so many others? Lucky you voted for this!
Looks like Carney fantasy of being a “associate “ member of the EU has already crashed and burner. Total nothing burger as usual.
Mark Carney has accomplished nothing for affordability for Canadians for over 18 months.
This article is right on. Variable rate mortgages will be affected. Fixed rate mortgages are determined by Government of Canada bond yields not the prime rate.
Everyone knows that the only people that will end up paying the extra are those who already have paid the most, right?