The burden of higher interest rates

​In my last report I referenced the recent news that the Bank of Canada had once again increased its benchmark interest rate (also called the 'overnight rate') a further 75 basis points from 2.5% up to 3.25%.

Since March of this year, the rate has increased by 300 basis points, which is the largest increase in roughly 30 years. 

I closed off my report asking If your household “has, or will be adversely impacted by these increased interest rates, or even if you are in a situation where you are not impacted, I would appreciate hearing from you.”

Over the past seven days I have received a strong level of response to that question, and I would like to thank the many people who took the time to get back to me on this issue.

After hearing from so many, a clear pattern began to emerge.

For those who are wealthier, typically they were concerned about rising interest rates and the possibility of a recession but were otherwise not personally impacted. 

Some even reported that were earning more money because of higher interest on certain investments.

However, for many working families struggling to pay bills and having some outstanding debt, many were severally impacted.

Several people took the time to share, in detail, just how hard financially, in terms of actual dollars, they were attempting to mitigate and absorb.

The anxiety and stress that is being caused as the Bank of Canada continues to raise interest rates is causing serious hardship for some Okanagan families.

It is fair to say that some family households are carrying a far larger burden than others as interest rates continue to rise.

Many asked when will the increases end? 

This is a fair question without a simple answer.

Last week our Federal Finance Minister, while in Vancouver, stated:   "We also understand right now that our government has a real responsibility to be fiscally responsible".

Flash forward to this week and our same Finance Minister, with the Prime Minister while in New Brunswick, announced $4.5 billion in spending for “inflationary relief”. 

Why does this matter?

Many economists and major Canadian Banks are warning Prime Minister Trudeau that the relentless spending by his government is part of what is driving up inflation, making the problem worse.

Bank of Nova Scotia economist Derek Holt, in response to this week's $4.5 billion spending announcement, stated:

“It seems sensible to assume that this will add to pressures on measures of core inflation,” and further stated “Any belief that it will ease inflationary pressures must have studied different economics textbooks.”

As reported by Bloomberg, the Canadian Imperial Bank of Commerce, Bank of Montreal and Bank of Nova Scotia, have all released reports expressing concerns over using revenue windfalls for additional spending.

I have two concerns: one,

1) My Conservative caucus and I have raised inflation and cost of living concerns formally with the government for months.

After a summer of silence, to now hear that some planned help for some families is welcome, although it is clearly not designed to be broad based enough to help the general population with the cost of living increases.

In addition, due to new legislation being required, it is an open question when these supports will be forthcoming. 

2) These supports are new spending which, as indicated earlier, will have inflationary results.

Conservatives have been proposing a 'pay as you go' rule where government departments should find an equal amount of savings before proposing new spending.

In Budget 2022 the government argues that it will have a 'policy review' where it anticipates it can find savings in its existing budget. Had it paired these new spending supports with savings elsewhere, the inflationary concerns would in many cases be offset or lessened. 

My question this week:

Are you concerned about the ongoing spending by PM Trudeau, or do you believe it is necessary in these challenging times of inflation and higher interest rates?

I can be reached at Dan.Albas@parl.gc.ca or call toll free 1-800-665-8711.