Inflation could get worse before end of year: Bank of Canada

“We think it’s going to move up close to five percent”: Tiff Macklem

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Prospective home buyers and mortgage holders could face higher borrowing costs soon, now that the Bank of Canada has signaled that it could be raising its key interest rate as early as April.

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Mortgage expert Leah Zlatkin of says that should not give anyone a reason to have cold feet about buying a home.

“If you are planning on buying and you need a place to live, buy. Find that place to live. Don’t get stressed out. The market is always going to be changing,” she said.

“And if you are constantly going to be worried about what it’s going to be next year or next month, you’re never going to live your life and enjoy it.”

Daily life for Canadians means bracing and wincing at sky-high prices everywhere.

As Bank of Canada Governor Tiff Macklem delivered his monetary policy update, he drew attention to those steep prices hikes, and to the bottle-neck in global supply chains driving up prices.

“Inflation is actually likely to move a little higher in the remaining months of this year. It’s currently running around four and a half percent. We think it’s going to move up close to five percent,” said Macklem.

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But will that surge upward have staying power?

“Over the course of next year we think it will come back down to two percent, or around two percent by the end of the year,” Macklem said, adding later that “We will be raising interest rates sooner than we previously thought.”

That, says Zlatkin, should not strike fear into anyone navigating real estate — already gripped with an affordability crisis.

“A small change in interest rates — 0.25 percent at a time — it is not going to have an impact on most Canadians,” she said.

“I’m honestly not nervous about this in any way because people who have fixed rate already, they will continue paying their fixed rate.”

Banks are now staking out how many rate hikes might occur.

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“In terms of our own view, we expect the Bank will raise rates three times next year, taking the overnight rate to 1% by the end of 2022,” wrote Sri Thanabalasingam, senior economist with TD.

“Inflation is heating up, and it would be prudent to remove some monetary stimulus as the economy continues down the road to recovery.”

That recovery hinges on how the country continues to emerge from pandemic disruption.


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