It’s called variable for a reason. What goes up, goes down & what goes up quickly, comes down quickly as the shock has a more significant impact.
I wanted to take a step back here & put into context what has happened over the last 2 years because a lot of people like to lean on the forecasters. The Bank of Canada in 2020 said repeatedly that it would not raise rates until 2023. How many people based major financial decisions around that guidance?
While they were saying that, our federal government was flooding record amounts of stimulus into the bank accounts
of Canadians & I think we all heard no shortage of stories of cheques that went out to people or companies who frankly, didn’t need it.
So we had record low borrowing rates, free money flying around & of course that turbo charged demand, all at a time where lockdowns & restrictions wreaked havoc on supply chains. The Bank of Canada said repeatedly they intended to let inflation “run hot.”
All of last year inflation started to build, and build and build. In the face of the highest inflation reading in nearly 2 decades, the Bank of Canada left rates unchanged at their January meeting. Then, the rush to play catch up & come in hot & heavy with 50bps hikes.
The thing with high prices is that they are cured by high prices. Meaning, high prices take away from the potential to spend elsewhere in the economy so demand suffers. As demand goes down, so eventually will prices. Canada’s GDP for Q1 came in well below expectation at 3.1%, compared to 6.6% last quarter.
Growth is slowing. Add on to that how mortgage costs have doubled this year & you have a recipe for recession. It’s not a question of if. It’s a question of when.