Over the weekend, Ontario Premier Doug Ford issued a letter calling on the Bank of Canada and Prime Minister Justin Trudeau to halt any upcoming interest rate hikes.
“There is simply no excuse for increasing the already crushing pressure previous interest rate hikes have placed on so many families and businesses,” Ford said.
Here in Canada we had up until recently a very precious unspoken rule that said politicians weren’t to criticize the central bank. When Conservative Leader Pierre Poilievre and B.C. NDP Premier David Eby did it—and when Ford did it in the past—people wagged their fingers at them for interfering in a supposedly non-partisan process.
But what else are they to do when this issue is no doubt what they’re hearing about non-stop from constituents? The problems people are having paying the bills is one of the number one topics of discussion. Politicians hear it from folks everywhere they go and their inboxes are being inundated with sad stories about peoples’ difficult financial situations.
Ford’s letter also touched upon the supply chain issues involved: “When everyday essentials like groceries, fuel and building supplies can no longer get to market in a timely manner, it is inevitably the hardworking, ordinary people who pay the price — at the checkout, at the pumps, and on their monthly mortgage and rent payments.”
There are a number of things that are worsening the affordability crisis and interest rate hikes play a big role. The Bank of Canada has upped its key lending rate 10 times since early March. Their goal is to tame inflation and bring it to close to 2 percent, and increasing the rates is their main tool to cool things in the long run.
But the frenzied pace that they’re going about it is making daily life more difficult. Both bank Governor Tiff Macklem and Finance Minister Chrystia Freeland were at first adamant that there would be no inflation, no recession, and no need for rate hikes. They stuck to this refrain up the minute before they did a full 180.
Interest rates remained low for a long time, starting during the 2008 economic crisis. They stayed so low for so long that an entire generation didn’t know it any other way. The way we thought about housing, investing, and entrepreneurship were all built around low interest rates. It was unsustainable, and the rates would have had to go up eventually.
Instead of doing it gradually though, Macklem has done it at whip speed. There’s no time to absorb the shock. People and businesses are being hit hard with massive increases all at once.
The restaurant industry is one of the sectors feeling it the worst. Restaurants Canada reported recently that half of their members are operating at a loss or just breaking even as food costs continue to rise. While many restaurants are increasing their menu prices, the challenge is that their customers are the very same people who are dealing with other rising prices. Some folks have just stopped eating out, creating a downward spiral for the beleaguered sector.
One of the biggest points of stress for consumers is mortgage renewals. There are many Canadians who are now forced to make much higher monthly payments as rates go up.
“Overall, Canadians are more down than usual on their financial situation and prospects,” says a recent Angus Reid Institute survey. “Half say they are in a worse financial position than they were last year, while 35 percent expect to be in a worse position a year from now.”
While Canadians on variable rate mortgages are already experiencing higher monthly payments, every month there are more homeowners that are renewing their fixed rate mortgages and experiencing sudden jumps.
This has banks and financial regulators worried about the health of the financial system. As Reuters recently explained: “To deal with the rising risks in mortgage loans, Canada’s top six banks have jointly set aside about $3.5 billion towards bad debt provisions in their latest quarterly earnings, denting their profits.”
Whether it’s low-income people struggling to buy groceries or middle-class homeowners at risk of defaulting and potentially losing their properties, the hardships felt out there are very real and likely getting worse.
So forget the niceties about criticizing the Bank of Canada. No wonder people are speaking out.
