Inflation rate drops. Core inflation remains at 1.6%, well below target range of 2% for Bank of Canada. http://tiny.cc/622gg
Where will that leave mortgage rates? Variable is still a good option. with recent data and slow growth in USA, its unlikely Banks of Canada will raise rates again this year.
Currently a 3 year Variable rate for 2.15% (prime -0.85%) is available.
An influential think tank has warned that interest rates may have to rise to 8% to combat rampant inflation.
The warning comes from the Policy Exchange, whose chief economist, Andrew Lilico, argues an economic recovery will unleash a wave of money.
Doctor Lilico believes a double-dip recession is likely, which would then be followed by a boom.
He argues that the US and UK monetary authorities will respond to this by printing more money.
Coupling that, he says, with the planned deep government spending cuts, would lead to the fastest economic growth rate since the late 1980s.
Doctor Lilico says in a research note: “Once the economy gets growing sustainably, there will be a huge expansion in the money supply, which will lead to inflation.”
The Bank has already pumped £200bn into the economy under quantitative easing to help stimulate demand.
‘Rise rapidly’
He says that policy of the Bank of England has quadrupled the monetary base and once the economy starts growing properly again, lending will expand and there will then be “too much money chasing too few goods”.
Doctor Lilico believes that “once inflation rises, interest rates will rise rapidly as well. Since interest rate rises will raise mortgage rates, the initial effect will be even more inflation”.
He expects inflation to hit a similar level to that of the early 1990s, in the region of 10%.
Base rates have been at record lows of 0.5% for the past 16 months.
At the last meeting of the Bank of England’s Monetary Policy Committee (MPC), only one member suggested a modest rise in rates to 0.75%.
The Bank has said that it is not overly concerned about price rises, even though they are rising at more than 3% a year, above the 2% target.
The Bank’s governor, Mervyn King said he had been “surprised” by the recent strength of inflation, but added the factors pushing prices higher were temporary.
Will Mortgage sky rocket? if you listen to the media its as usual all doom and gloom. Reality is that we have a perfect storm. With Canadian Dollar appreciating so strongly, imports will become cheaper and that will translate to lower retail prices. with HST kicking in, most Canadians will cut back a little on spending. With higher debt load and higher mortgage rates and stringent lending guidelines, demand for housing losing steam and cost to carrying a home will cost more. all these factors will lead to a fairly significant slowdown in consumer spending. If thats the objective of Bank of Canada. Raise rates to keep inflation and spending under control… well their job has been done, so is there a need to raise rates? Probably but slowly.
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