This week’s inflation numbers, which were higher than expected because of persistently high energy prices, might also mean the cost of borrowing is going to rise. According to the economists at Desjardins the investment community has already priced a rate increase into its models.
The most common tool for fighting inflation is to raise interest rates which tends to slow the economy triggering weaker demand so prices are pulled lower. According to the forecast, the US market is braced for two rate hikes while Canada is likely facing one.
That alone could spell further problems for us.
Right now, the Canadian dollar has been sliding when compared to other currencies, especially the American greenback. This may be welcome news for exporters it also raises the cost of imports which on its own can make inflation worse, adding even more pressure for interest rate hikes.
So, not only are prices continuing to go up but the cost of borrowing is poised to increase as well …just one more price increase for us to manage.
