A large share of Canadians have seen a spike in their mortgage expenses recently
With inflation likely to register near the target rate if mortgage costs are removed from the equation, the time is right for the Bank of Canada to cease its rate-hike campaign, according to Ted Rechtshaffen, president and CEO at TriDelta Financial.
In a contribution for the Financial Post, Rechtshaffen said that the 3.4% annualized inflation rate seen last month “doesn’t tell the real story” when it comes to the impact of the central bank’s policy rate (currently at 4.75%).
“The mortgage interest cost index was up a massive 29.9%,” Rechtshaffen said. “You would not be alone if you looked at that number and thought, ‘What the hell do they expect?’ Shockingly, as sure as one plus one equals two, mortgage expenses go up for a good percentage of Canadians when the Bank of Canada raises interest rates.”
This increase is sufficiently massive that if the mortgage interest cost index is removed, the year-over-year CPI will be at 2.5%, Rechtshaffen said.
“One year ago, this all-in CPI rate was 7.7%,” Rechtshaffen said. “It has declined by 5.2% in one year. Whether it is from central banks hiking interest rates, or simply a normalization of inflation, after the COVID-19 roller-coaster on global economies, this a significant shift any way you look at it.”
At this point, further BoC hikes will be akin to “suggesting that someone with high blood sugar should eat a sugar cube to bring their blood sugar level down,” the exec warned.
Rate hikes do help with moderating inflation, but the impact will always be delayed, Rechtshaffen said.
“If the CPI is now 2.5% and the sizable interest rate hikes are having a lagged impact, doesn’t this suggest that we are done taming inflation with interest rate hikes? After all, the Bank of Canada just did another interest rate hike in early June. How much more lagged impact is already ahead of us if inflation is already at 2.5%?
“Higher interest rates have already had a big impact on inflation and will continue to have an impact for some time to come. It is time for the Bank of Canada to stop raising rates now.”
