Canada Inflation Numbers Spell Bad News for Prime Rate Borrowers

Canadian inflation numbers released this week were a mixed bag, with the Consumer Price Index (CPI) coming down the tiniest bit but core inflation rising the tiniest bit. This raises the odds of another 25 basis points increase in the Bank of Canada rate in January to sure thing status. The news comes as a disappointment to many Canadians who have been relying on prime rate borrowing to make ends meet. The potential rate hike could mean an additional financial burden for those already struggling with debt and other expenses. “It’s not good news for borrowers,” said Andrew Chisholm, a financial analyst at Bank of Montreal. “We’ve seen a steady rise in interest rates over the past year and it looks like we may be heading towards another increase in January. That could mean more money out of pocket for people who are already struggling financially.” The Bank of Canada has raised its key interest rate five times since July 2017, from 0.5 per cent to 1.75 per cent as of October 2018 – an increase of 125 basis points over that period – largely due to concerns about rising inflation levels across the country. While economists say that these increases have been necessary to keep prices stable, they also acknowledge that they can have a negative impact on consumers who rely on prime rate borrowing products such as credit cards and lines of credit. While some analysts are predicting that this latest move will be limited to just 25 basis points, others caution that it could be higher if economic conditions continue to deteriorate or if global markets experience further volatility due to trade tensions between China and the United States or other geopolitical issues. “It’s impossible to predict what will happen next month or even next year when it comes to interest rates," said Chisholm "But one thing is certain - any further increases could spell trouble for those already feeling stretched by their current debt obligations."