Yet again, the Bank of Canada has decided to keep its overnight rate at 1% – but, for the first time, deflation is on the Bank’s radar.
While inflation is currently within the Bank’s ideal range of 1-3%, it’s at the bottom of that range, sitting at 1%. The reason, according to the Bank, is “excess supply in the economy and heightened competition in the retail sector.”
Although we hear a lot about the risks of excessive inflation, deflation can be just as bad. Essentially, deflation is a general decline in prices across the consumer price index – caused by a drastic drop in spending.
It can spell bad news for an economy (the only case of significant deflation in recent history was during the Great Depression), but the Bank of Canada says it’s not time to worry yet. Increased demand from the US and a lower Canadian dollar will likely remedy the problem – but the Bank is nevertheless keeping its eye on the issue.
If it looks like inflation is in danger of heading below the Bank’s target, we could see a decrease in interest rates – which would be good news for variable rate mortgage holders. That being said, things could just as easily turn around and we could see a rate increase in the near future. So, like always, don’t get your hopes up: “The timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks”.
As always, if you have any questions about your variable rate mortgage – or any mortgage – please feel free to give us a call. (780) 244-0505