The Bank of Canada’s interest rate increased again from 4.25 percent on December 7, 2022, to 4.5 percent. This is by far the slightest change in the interest rate; in the near future, the interest rate will remain higher. The increased interest rates will further make spending more money on a massive scale challenging. Moreover, this will likely impact Canadians in their routine life as well as newcomers.
Although the Canadian economy is consistent, it still bears the consequences of international events. The Bank of Canada’s interest rate increased due to the existing global challenges, such as the conflict between Russia and Ukraine. The gas, oil, and food expenses also increased due to this conflict.
According to the Bank of Canada, a rise in interest rates will positively impact long-term goals. A rise in interest rates usually reduces the inflation rate, which peaked at 8.1 percent in June last year. Ever since the inflation rate has only declined to 6.9 percent; however, it will further reduce to 2 percent. With the rise in interest rates, inflation is bound to decrease. Consequently, newcomers are indeed stressed about beginning a new life in the country.
Bank of Canada’s interest rate is high resulting in a slow economy and lesser demand
A few economic techniques positively impact the economy in the long run. However, the price for consumers will only become temporarily costly. An increased interest rate depicts reduced inflation due to a decline in demand. Furthermore, when the purchasing power of Canadians becomes less, the demand also declines. As a result, suppliers need to fulfill demands more conveniently without ever raising expenses. For instance, if people buy less oil and gas, there will be more of it available in the market. This will further compel the suppliers to decrease their prices to get some profit.
Per the usual norm, reducing oil prices results in a complex yet costly process for the global transportation of items; hence, businesses can also reduce their prices.
Moreover, when Canadians purchase less, even in the middle of reduced oil expenses, businesses experience a severe impact and require to reduce the supply. Hence, a lesser purchasing capacity only decreases the long-term expenditure for consumers in the future.
The connection between reduced demand and employment rate
Canadian newcomers will face a massive drawback in the form of a higher employment rate. The country faces severe labor shortages across all sectors, with the aging population and a declining birth rate.
To address this, Canada even introduced its highly targeted Immigration Levels Plan last month. Moreover, it will welcome 500,000 new permanent residents each year by 2025. This is because Canada has an increased rate of job vacancies across various industries, such as healthcare, professional, scientific, and construction services.
Apart from this, Statistics Canada reflects that employees will witness a huge demand in the above in-demand sectors. Moreover, the rate at which the employees will be hired will be less than the worker demand.
BoC’s governor also reiterated the requirement for hiring more immigrants in Canada. He further stated that the most appropriate way to balance the situation is by enhancing the supply of employees. According to him, the more efforts they make toward the supply, the less they need to do for the demand. Also, recruiting newcomers will further only enhance the high wages. The Bank of Canada agreed that doing the above is essential to slower wages to control inflation.
Therefore, businesses get the chance to raise the supply with the help of slower economic growth and increased interest rates. This is often possible under various circumstances, such as an increased labor force. Additionally, a country will not progress if it lacks adequate workers to raise the supply amid reduced interest rates and inflation.
Bank of Canada’s interest rates- their impact on Canadian’s purchasing power of a home
Presently, Canada is undergoing a challenging time in terms of affordable and residential housing. An increased interest rate indicates a heavy expense in loans and mortgages. This is only because doing so will reduce the rate at which houses are bought, reconsidering supply and increasing the building of houses. Overall, this implies that Canadian citizens and permanent residents can purchase new dwellings; however, it will be costlier.
Recently, the country declared that introducing a new initiative will only raise the housing supply. Per the new act, only those with Canadian citizenship and permanent residency will have permission to purchase houses until 2025. However, temporary residents might still have the chance to purchase a Canadian house. But this will also have specific conditions associated with it, further making it more challenging.
The cost of living
The payment of application fees, travel fees, and expenses related to searching for accommodation, transportation, and groceries can get even costlier and might astonish the new immigrants. Hence, they must accept that they will likely start with rental homes. Since the Covid-19 phase, this country has been living with higher rents. On average, the rental cost will be around $2,048 each month, increasing 12 percent even before the pandemic. With rising interest rates and costlier mortgages, landlords will raise the rent to cover these expenses.
Also, between 2021 and 2022, food expenditure increased by 11 percent. Also, the typical Canadian house with four people will now require to spend at least $16,288 on food items this year.
Conclusion
According to the Bank of Canada, the country will undergo a slight recession period that will prevail in 2023. As expected, the GDP growth will reduce from 3.6 percent to 1 percent in 2023.
Per the economists, the inflation rate will decline to 2 percent by 2024 and 3 percent in the mid of 2023. Bank of Canada’s interest rate might increase in the near future. Furthermore, it indicates that the country is prepared to witness increased rates to fight inflation. As a result, the purchasing power will limit the purchasing capacity of individuals.
Overall, Canada can expect to witness a higher inflation rate, accounting for at least 5 percent. However, the cost of homes, groceries, and rent will not experience any drastic price reduction. BoC also states that prime inflation has already peaked and the next year will only see a minute change in GDP growth.
Declined costs and inflation will further lead to a better economic stage for Canadians and immigrants in 2024 compared to this year.
