In my last column, I referenced the recent news that the Bank of Canada had once again increased its benchmark interest rate (also called the “overnight rate”) a further 75 basis points from 2.5% up to 3.25%.
Since March of this year, the rate has increased by (a total of ) 300 basis points, which is the largest increase in roughly 30 years.
I closed the column by asking readers if their household has been, or will be, adversely impacted by the increased interest rates, or even if they are in a situation where they are not impacted.
Over the past seven days, I received a strong level of response to that question, and I would like to thank the many people who took the time to get back to me on the issue.
After hearing from so many, a clear pattern began to emerge. For those who are wealthier, typically they were concerned about rising interest rates and the possibility of a recession but were otherwise not personally impacted. Some even reported they were earning more money because of higher interest on certain investments.
However, for many working families struggling to pay bills and who have outstanding debt, many were severally impacted. Several people took the time to share, in detail, just how hard financially—in terms of actual dollars—they were attempting to mitigate and absorb (the increases).
The anxiety and stress being caused as the Bank of Canada continues to raise interest rates is causing serious hardship for some Okanagan families. It is fair to say some households are carrying a far larger burden than others as interest rates continue to rise.
Many asked when will the increases end?
This is a fair question without a simple answer. Last week our federal finance minister, while in Vancouver, stated: "We also understand right now that our government has a real responsibility to be fiscally responsible".
Flash forward to this week and the finance minister, with the prime minister while in New Brunswick, announced $4.5 billion in spending for “inflationary relief”.
Why does this matter? Many economists and major Canadian Banks are warning Prime Minister Justin Trudeau that the relentless spending by his government is part of what is driving up inflation, making the problem worse.
Bank of Nova Scotia economist Derek Holt, in response to this week's $4.5 billion spending announcement, stated: “It seems sensible to assume that this will add to pressures on measures of core inflation.” He added, anyone who believes it will ease inflationary pressures “must have studied different economics textbooks.”
As reported by Bloomberg, the Canadian Imperial Bank of Commerce, the Bank of Montreal and the Bank of Nova Scotia have all released reports expressing concerns over using revenue windfalls for additional spending.
I have two concerns:
1. My Conservative caucus and I have raised inflation and cost of living concerns formally with the government for months. After a summer of silence, to now hear some planned help for some families is welcome, although it is clearly not designed to be broad-based enough to help the general population with cost of living increases. In addition, due to new legislation being required, it is an open question when these supports will be forthcoming.
2. These supports are new spending, which, as indicated earlier, will have inflationary results. Conservatives have proposed a pay-as-you-go rule, where government departments should find an equal amount of savings before proposing new spending.
In this year’s budget, the government said it will have a policy review, where it anticipates it can find savings in its existing budget. Had it paired these new spending supports with savings elsewhere, the inflationary concerns would, in many cases, be offset or lessened.
My question this week:
Are you concerned about the ongoing spending by the federal government or do you believe it is necessary in these challenging times of inflation and higher interest rates?
I can be reached at [email protected] or call toll free 1-800-665-8711
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.