Up she goes

It’s been a long time since this happened.

The Bank of Canada just raised interest rates. Most smart folks think this is the first in four hikes. By the end of 2027, economists figure, Canadians will be paying a full 1% more for borrowing.

This was the start – a quarter point. That came after more than a year of doing nothing, watching Trump, assessing the trade war, seeing what Carney was up to, assessing the jobs market, tracking the stupid Iran war and oil prices and, above all, seeing what it meant for inflation.

Nothing good, as it turns out.

Not so long ago our inflation rate sat at 1.8%. Now it’s 3.1%. Oil is back at a hundred bucks, so the price of everything may rise more in the coming months. The central bank’s mandate is to keep cost-of-living increases at 2% or less a year, as well as foster economic growth and job creation. Buty it’s hard gig doing all that at the same time.

Raising rates will make mortgages, car loans and business investment more expensive. When credit costs go up economic activity goes down. And already we lost 68,000 jobs last month.

But lowering rates, or letting them sit as inflation swells, fuels demand, increases borrowing and ultimately breeds even higher prices. Besides, the Yanks have raised their CB rate, plus the bond market has pushed yields higher. So a low-rate policy in Canada would mean a dollar south of 70 cents. But a low loonie makes imports cost more – which is inflationary.

See the problem? There is no win here.

Banker boss Tiff gets that. This is what he just said about where things are headed:

“Cost pressures are building, with high fuel prices raising the costs of production and transportation. Imported industrial and electronics input prices have also increased. While businesses have mostly absorbed higher input costs so far, Bank surveys suggest cost pass-through will increase over the next year. Near-term household and business inflation expectations have risen, while longer-term inflation expectations remain well anchored.”

As you know from reading a certain pathetic (but with shimmering abs) blog, one of the main drivers of Canadas GDP – real estate – is in a sad state at the moment. This week we told you about a supply of unsold new condos in the GTA which stretches right into 2031. We’ve also reported that over 90% of people taking out mortgages lately have gone with floating-rate variable models. They’re up to 1% cheaper than fixed-rate loans, but also move higher every time the prime does. And that just happened.

Recently all the Big Six banks upped fixed mortgage rates – by between a fifth and a half point – reflecting yields on five-year Government of Canada bonds. Thoe yields has fallen a little in the past month (investors have been buying bonds in a flight to security as AI eats the stock market), but are still higher by almost a full 1% than at this time last year.

In fact, the cost of money has been going up pretty much around the whole world, pushed ahead by inflation, a global trade war (thanks, orange guy), a real war and absolute boatloads of government and private debt. Now the AI boom means hundreds of billions are being borrowed by the tech giants to build out infrastructure that might never pay for itself. It’s a gamble.

So it’s been since late 2025 that our central bank has touched its benchmark rate as all this stuff washes over us. Now that inflation looks like it’s becoming entrenched and oil will be higher for longer (and Trump is still nuts while Netanyahu is not gone) it’s being forced to act, Reluctantly. Higher rates will extinguish more embers in the housing market. It will curtail investing in the economy. Probably cost more jobs. Maybe push us closer to recession.

But, what else to do?

On a positive note, our central bankers actually see a few ponies and rainbows ahead. “Consumer spending has been solid, even with slow population growth,” they say. “Business investment rebounded, reflecting oil and gas sector activity and spending on machinery and equipment. Despite ongoing weakness in sectors affected by US tariffs, exports overall have strengthened, owing to robust US demand, higher energy production and increasing signs that businesses are adapting to the changing trade environment. environment.”

So Ottawa thinks next year will be better. The bankers believe raising mortgage and loan rates for a few months will lead to a better place. Economic growth will double in 2027, we’re told.

But wait. In case you’re feeling too randy, they added…

“This forecast is still subject to considerable uncertainty.”

Argh.

About the picture: ‘Hey ya Garth, may I present Patel?” writes Garyll. “He is always on guard here at camp near De Riet, Namibia. Chasing away jackals, hyenas, and whatever else might eat us. We are on a 45-day trip around this beautiful country. At the same time, definitely makes you appreciate stable, secure, safe Canada.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2026/10/28/up-she-goes-2/