12/06/2023
Canada is undergoing its initial phase of elevated inflation in a generation. Throughout the last two years, there has been a swift increase in the prices of goods and services, diminishing the purchasing strength of the Canadian dollar and rendering life less economical for residents.
Inflation is gauged by monitoring the annual variations in the Consumer Price Index (CPI). The Bank of Canada's principal aim is to sustain this at a 2 percent threshold. In June 2022, CPI inflation soared to an unprecedented 8.1 percent, hitting a peak not seen in four decades, and has been on a gradual decline since then. As of June 2023, it had eased to 2.8 percent.
In its efforts to control inflation, the Bank of Canada utilizes interest rates. By implementing rate hikes, the bank elevates the expense associated with borrowing for both households and businesses, increasing the cost of obtaining funds and managing debts. This, consequently, reduces the demand for goods and services, aiming to decelerate the pace of price increases.
The majority of Canadians encounter interest rates in connection with mortgages and various types of consumer debt, such as credit cards, personal loans, and auto loans. Commercial banks utilize the prime rate to determine interest rates for variable-rate mortgages and home-equity lines of credit, and this rate has increased from 2.45 percent in 2021. Additionally, interest rates for fixed-rate mortgages have also undergone an increase.
