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    • Interest rate hike expected Wednesday in move to quell inflation

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    Economists say the Bank of Canada is on track for another rate hike on Wednesday. 

    It is expected to be a 0.5 per cent hike, bringing the benchmark overnight rate to 1.5 per cent, “with more increases likely in the months ahead,” said Nathan Janzen, assistant chief economist at the Royal Bank of Canada.

    It’s all in a move to quell inflation. Canada's consumer price index jumped 6.8 per cent in April compared to the previous year, according to Statistics Canada.  

    Groceries jumped 9.7 per cent, and gasoline rose 36.3 per cent year over year.

    The jump in interest rates will have an immediate impact on consumers with lines of credit, and most with variable rate mortgages, according to Croft Axsen, founder of JenCor Mortgages Inc.

    “People who are have existing variable rate mortgages, their payments are going to go up. Also, if they have an adjustable rate, where the payments go up, based upon the increase in the prime,” said Axsen

    “So they'll be the ones that will notice it,  but still, a half per cent increase on $100,000 is probably $30 a month change in payment.”

    Axsen says for an average $400,000 mortgage in Calgary, it works out to around $120 more in payments each month.

    Axsen points out mortgage applicants are stress tested to 5.25 per cent interest rates, saying as a result most should still have wiggle room left in their budgets.

    Realtors expect to see a dampening in home prices as rates rise, but Michael Montgomery of Renzo Realty expects sales to remain strong despite the bump in interest rates.

    “Calgary is in a really good position because we still have all of this outside influence, specifically out of the province influence coming into our city," he said.

    "So that should theoretically still continue to drive our prices in the right direction. But as interest rates come up, buying power decreases and therefore, prices may start to slide.”

    It’s not just mortgage and line of credit rates that will rise with the rate hike. Most consumer debt will become more expensive to service, says Mark Kalinowski of the Credit Counselling Society.

    “Rising interest rates take money out of people's pockets directly,” said Kalinowski.

    “With overall inflation, when people are going to gas their cars and it used to be $60 and now it's $100. That's a huge take out of their weekly paycheques. Never mind if you're increasing your payments toward your credit cards and your homeowner line of credit as interest rates rise.”

    At the same time, interest rates are set to jump. Statistics Canada says the country’s GDP growth is slowing, dropping from 6.6 per cent in the last quarter of 2021 to 3.1 per cent in the first quarter of this year.

    Rising interest, dropping GDP and climbing inflation could lead to a troubling form of recession known as ‘stagflation’ according to Mount Royal University economist Anupam Das.

    “And it's very hard to come out of that stagflation," said Das.

    "Just changing interest rates will not solve that problem, which means that if economic activity is remained low, average Canadians will start losing jobs and unemployment will increase and then we will definitely be in recession.”

    ATB economist Rob Roach says Alberta may be spared the worst of the economic consequences of a slowing Canadian economy.

    In an update released May 19, Roach predicted Alberta’s economy will grow the fastest of any in Canada through this year and next.

    “We expect Alberta’s economy to grow by 5.0 per cent this year followed by 3.5 per cent in 2023.” wrote Roach.

    “Boosted by high oil and natural gas prices, Alberta will likely lead the country in economic growth this year. Despite this, when we take population growth and the hole left by the pandemic and the oil price crash of 2020 into account, Alberta’s per capita GDP will not catch-up to its pre-pandemic level until 2023.”

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