Rising interest rates may affect households, and counting

For households, this could have a financial impact. Some have taken on very large mortgages in the last year and might find it a little more difficult if they ever opted for variable rates, thinks Mr. Gignac. Their monthly payments will cost them more, he adds.

For a $300,000 mortgage, the 0.5 percentage point increase represents an increase of $90 per month – or about $1,000 more per year. Three increases of 0.5 percentage points in interest rates would represent, for the same variable rate mortgage loan, over $3000 in budget households each year, explains Mr. Gignac.

” Currently, people and governments are more indebted, and each percentage point has a much greater impact. »

He recalls, however, that if Canadian households are more indebted [ils] have more assets, they mostly got rich during the pandemic. So their house has increased in value and their portfolio on the stock market has taken [aussi] a lot of valuehe believes.

However, while households are generally richer than three years ago, This is not the case of everyone, argues Mr. Gignac. Wednesday’s increase in the Bank of Canada’s key rate could make their situation a little more difficulthe continues.

His main fear is that too vigorous an increase in interest rates by the Bank of Canada will lead to a recession. In this case, many Canadians could to lose [leur] job, and there it is [qu’ils auront] financial difficultiesargues Mr. Gignac.

The Bank of Canada is late

Clément Gignac explains that three elements are pushing the Bank of Canada to raise the key rate significantly.

First, 70% of the price categories in the consumer price index see an increase of more than 3%. Then, wage growth accelerates. Finally, the economy is in a situation of excess demand, recalls Mr. Gignac.

These elements justify, according to Mr. Gignac, the action of the Bank of Canada – which should not hesitate to raise interest rates further. The central bank is however late since she has wrong about inflation in his predictions. She should therefore put double bites.

Keep in mind that the key rate should already be around 2.5%, which is the neutral rate, given that we have an economy that is running at full speed. [et la Banque du Canada] will move with more force to respect [son] mandate, notes Mr. Gignac. The Bank of Canada’s inflation target is 2%.

The rise in inflation to 6.8% in April has many effects on Canadian consumers, who pay more for the products they buy.

” Whether [la Banque du Canada] wanted to curb the economy, we could go to 3% or 3.5%, so we are not out of the woods. »

Mr. Gignac argues the risks of stagflation and recession in the event of excessive increases in interest rates.

With the increase in the key rate on Wednesday, Mr. Gignac indicates that the Bank of Canada paves the way for more marked increasesand at the next meeting on July 13, she will set the table for a 75 basis point raise.

In the USA, if the Federal Reserve goes in the same direction [que la Banque du Canada], that can mean a little more volatile markets. Some sectors will be hit harder than others, such as the residential sectorcontinues Mr. Gignac. It is obvious that this will further affect residential growth.

A bit of fresh air

Mr. Gignac believes that governments can help the poorest households. The idea of [leur] help with a check for $500 [est] good. However, he points out that what the Legault government did in its last budget helped everyone, including [les ménages] who earned close to $200,000.

If other aid were to be put in place, it should target low-income people because they are the most [touchés] by inflation. Mr. Gignac cites the cost of groceries and gas in consumer basketelements that represent a much greater weight for less affluent households.

” Governments have a role to play, but they need to be much more targeted if they want to help households with inflation. »

In New Brunswick, the government of Blaine Higgs announced earlier this week that it will issue checks for $450 to families and $225 to single people to help them cope with inflation.

In Quebec, Premier Legault has mentioned the possibility of a new tranche of aid for households later this fall, but it would be conditional on the re-election of his government on October 3, the opposition accusing him of wanting to buy the election.