Canadian Personal Finance Blog

Archive for the ‘Bank of Canada’ Category

Stats Canada announced the CPI numbers for December and for all of 2009 and the trend started in November got a little more momentum with the CPI for 2009 being 1.3% (over 12 months), and Gasoline sits front and center again as an issue.

The rise in the all-items Consumer Price Index (CPI) was due primarily to gasoline prices, which exerted upward pressure on the CPI for the second consecutive month. This follows an extended period in which they were the main contributors to year-over-year declines in overall consumer prices.

For the year the big price jumpers were:

• Energy given we are back at $1 per liter this is no surprise there
• Transportation given gas prices again, no surprise, although the cost of mass transit is going up a lot too
• Health and Personal Care this one really worries me, if health care costs keep doubling the average on inflation, we older folks might be in trouble come retirement time
• Alcoholic Beverages not as high as health care, but you can at least give us a chance to drown our sorrows? C’mon!!!

See the big table for the numbers.

The Big CPI Table

I really like this table because it shows you all the ugly numbers together:

This is getting a little repetitive but Bank of Canada’s key overnight rate remains at 1/4% unchanged again this month. The overall Bank Rate remains at 1/2% as well, which means cheap money continues in the market place.

The statement from the bank is mostly that the recovery continues and we should be out of this whole mess some time near the end of 2010 or the beginning of 2011, but the important line to read is:

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.

The end of the second quarter is June, which means interest rates will be going up this year, and you are running out of time to take advantage of these cheap rates to pay down your debt (assuming you are not paying Credit Card debt, in which case, this has no effect on you). If you have a variable rate mortgage can you lock in, or has the bank already altered it’s rates so that locking in might not be as attractive now?

Remember if the bank raises interest rates to say 2.5% somewhere along the line, that is a huge percentage increase compared to where they are right now.

CPI Numbers Today Too

To confirm the Bank of Canada’s inflation statement, Stats Canada will be posting the CPI numbers for the end of 2009, which should be a very interesting statement. With gas prices inching their way back to $1 per liter, I suspect inflation is back it’s just how bad is the question.

In the past few days there have been a few headlines that most folks who knew about the subject would say, “Well that was obvious wasn’t it?”:

• Former baseball star admits to steroid use. The only thing new here is that the player in question is admitting to it (mostly because he wants to take a job back in baseball). No surprise there, kind of obvious really
• A man who kept a “pet” tiger was mauled to death by the creature. The surprising part is that the beast hadn’t done it sooner.
• Snow falls in Ottawa in January, OK that is a trick one, but not very surprising, and certainly not a big news story.
• Financial bloggers see tough times ahead, again, not a surprise either.

Financial Surprises

In contrast I was surprised to see that my Secured Line of Credit and my Unsecured Line of Credit have the exact same interest rate (currently). For those unaware typically a secured line of credit has a lower interest rate because it is secured against something of higher value (e.g. a house), and an unsecured line of credit is simply the bank figuring you are a reliable enough person to loan money (and presumably pay it back in a timely fashion).

My guess is this is a fiduciary anomaly, and will soon be remedied by my bank, but given I don’t use the unsecured loan vehicle, maybe it won’t be? I’ll keep watching to see if and when my bank notices this interesting situation.

What will I be surprised by next? Free Banking?

CPI Going Up

Stats Canada published the November Consumer Price Index numbers yesterday and it is starting to get some momentum in the UP direction, with their index going up by 1.0% (year over year ending in November 2009).

The rise in the all-items Consumer Price Index (CPI) was due primarily to gasoline prices. Prices at the pump are now exerting upward pressure on the CPI after an extended period in which they were the main contributors to year-over-year declines in overall consumer prices.

Interesting that gas prices in December seem to be dropping, so how this changes next month’s CPI remains to be seen.

Bank of Canada’s Core Index

More importantly the Bank of Canada’s Core Index is up 1.5% year over year, which is starting to push inflation into the target zone for the Bank. If this upward pressure continues, this may push the bank to act sooner with an Interest Rate increase to hopefully put the brakes on any Inflationary explosion.

The Big Table

NB: Random Thoughts may be on hiatus for a week or two, given the season coming up, or there might be a special Monday edition, if I feel exceptionally lazy next week.

Christmas Laziness and Cheer

I am planning on doing a Top 10 postings for the Christmas/New Year stretch (given I may or may not be around), so if you have any suggestions for this kind of a list (top 10 for this year), please leave a comment with a title or story you may have particularly liked (written by me, that is).

So the Bank of Canada announced on Thursday that one of the threats to the on-coming recovery in Canada is that Households are holding too much debt. To be specific:

The vulnerability of Canadian households to a deterioration
in economic conditions has risen in recent years, as
aggregate household debt has increased in relation to
income. There is thus a risk that a shock to economic
conditions could be transmitted to the broader financial
system through a deterioration in the quality of loans to
households.

The report outlines that the levels of indebtedness in Canada are nowhere near catastrophic levels, however, we are heading in the direction that may lead to that kind of failures in the system. Remember I have been a bit of a broken record that maybe it’s time to start paying back debt, instead of picking up more debt now. The report also points out that if the “recovery” dies off and we go back into the economic “crapper”, household debt failures are going to happen a little more often.

There may come a time when lenders in Canada may tighten the purse strings and turn off the credit taps, and that would be an inconvenience but not a big issue to some folks. If they decide to rethink or revisit existing risks in the system that is when we can start seeing interesting scenarios like banks refusing to re-new Mortgages of existing customers (not likely, but if you have debt still a remote possibility).

The only absolute way to not have to face this possibility is to get out of debt and then you have control of your own finances. Much like the only absolute form of birth control is abstention (the Vatican is correct on that one, unfortunately), the only sure way not to have issues with your Debt Vehicle, is to retire it quickly.

(Sorry about the Planned Parenthood reference, one day I’ll write about how Vasectomies are not fool proof either).