For homeowners, if not quite for consumers, there deserve to be sighs of relief with Tuesday’s Consumer Price Index data.
Finally, it appears, there is a gradual reduction taking place in the pace of increases to the cost of living. It’s not that things are cheaper year-over-year, just that they’re not as a bundle getting more expensive at the same rate.
Which, if you’re to believe the Bank of Canada, is one of the beneficial symptoms of a slowing economy – so beneficial, in fact, that it may be enough to put a cap on interest rates so that they can start coming down before long. We need to wait until Oct. 25 for that verdict, when the central bank next decides on the central rate.
The September year-over-year inflation data – 3.8 per cent nationally, 3.3 per cent in British Columbia – beat expectations, and that too is a hopeful sign around interest rates, because when the experts are out-smarted it is often a good thing for us. (Indeed, month-over-month data indicated a decline – including, of all things, food prices.)
Not so long ago we would have been freaking at data like that, but in life everything is relative, because for those homeowners with variable rate mortgages this could signal that a resurfacing price stability in the economy means their costs will not get worst and more manageable times are ahead.
Our premier has been among those calling for the central bank to cease its routine quarter- and half-point additions to the rate – now five per cent – that guides lending costs. David Eby is correct that the rise upon rise upon rise has left many British Columbians beyond their means in the housing market. Further increases will only further their misery.
That being said, runaway inflation furnishes misery all over the place, not just in the mortgage market, and fuels an expectation that generates borderline hysteria hard to contain and subdue.
One of the curious things about the way central banks deal with their rates is that they use rising rates essentially to inflict enough caution and cooling in the economy. Until there is a general slowing, there won’t be a general sliding of the rate.
The bank likes to see inflation wrestled down to two per cent, and it is interesting to note that some economists are wondering if that might now be a half-point or so unrealistic – if it ought to be twoish. The bank, of course, isn’t budging on that policy. It would be quite the four-alarm fire if it digressed, not just at home but abroad.
There are substantial political consequences arising from the actions of the independent central bank. Tuesday’s inflation information – if it leads the central bank to put the brakes on the rate – will be a respite for the Trudeau and Eby governments that talk about the need for millions of new homes at a time they are not only expensive but financed at generally untenable levels.
Mortgages need to get down to three and four per cent to find their place in a household budget that has long since abandoned the premise that housing ought to be 30 per cent of net income. Our memories of those days have faded.
For an Eby government facing an election in a year, the easing on the mortgage rates and the costs of living would be more apparent, tangible consumer (aka voter) benefits that politically outweigh a slowing of the overall economy. Same goes for the Trudeau government in two years.
Forget that neither has a prosperity plan for the economy, or that both have broadened public spending without a proportionate revenue growth owing to a growing economy. Neither government has demonstrated any serious understanding of how to plant the seeds to yield a better economic crop. They are living off a harvesting strategy, but that is a problem for another year. The task at hand is to stop the consumer complaints, because that hurts most at the ballot box.
Kirk LaPointe is publisher and executive editor of Business in Vancouver and vice-president, editorial, of Glacier Media.