Canadian Personal Finance Blog

Consumer Price Index at 2.2% for May

Yes, inflation is on the rise folks, up from 1.7% in April, hope you aren’t surprised, because I sure as shooting am not!

For those who wish to note the obvious, from this month’s report we have the following statement:

The acceleration in consumer prices in May was mainly a reflection of the 12-month increase in gasoline prices. This acceleration in gasoline prices occurred as crude oil prices almost doubled between May 2007 and May 2008. Gasoline prices increased substantially across the country, rising the most in Quebec and Ontario.

I’ll take “State the Obvious” for $1600 Alex. This is only the beginning folks and this is going to trigger a reaction in interest rates, I think this might be time to start partying like it’s 1974, because we may be hitting that “tipping point” (to use an overused and trite term) and may be heading for some heady inflation rates real soon.

Property Tax Day in Ottawa

Given that the Hockey Night In Canada theme’s rights are already owned, I am curious what tune I might play as the theme for Property Tax Day in Ottawa (feel free to add ideas in the comments section), I’ll settle for the Beatles “Tax Man”, for now.

I had a look at my second payment for my property taxes this year, and I am struck by a few major points that I hadn’t noticed when I first bought it.

The City of Ottawa thinks my house has appreciated in value over the past 8 years by over 50% (if you calculate this by ( (New Price - Old Price) / Old Price ). I have done some work on the house, mostly upkeep things, but what would cause such an astronomical increase I have no idea. Yes I am living in one of the fastest growing suburbs in Canada (Nepean/Ottawa South), but new houses are going up around me faster than mushrooms in my back lawn!

There are a plethora of other interesting charges on my tax bill:

• Solid Waste Curbside pick up fee of $82.00, interesting, and I guess I don’t mind that, given I don’t want to go to the dump every week to drop my trash off.
• I am paying the Conservation Authority about $20.00, my only wish would be that they keep the Canada Geese and vermin in the parks and not in my backyard.
• A Capital Tax Levy, which I think is translated to “Give us more money dammit” of over $40
• Standard fees for Fire, Police, Transit and the actual money that goes to the City of Ottawa so they can afford all the interesting services they offer.

Am I getting good bang for my buck here? I guess, I do like the libraries a great deal, and we do use the recreational facilities a great deal. I just drove into work on the roads that the City supports, so I guess I should be paying for those as well, so I guess I am getting a bargain? At the end of it, I am paying %3.5 of my gross income on this.

As suspected the CPI for April is up, says Stats Canada. The rate for March year over year was 1.4% but for April year over year it is 1.7%, which seems to suggest the high price of gas is starting to make it through the system and is being reflected in consumer prices.

Gasoline was the main contributor to both the acceleration and the 12-month increase of the all-items index. Gasoline prices rose 11.6% between April 2007 and April 2008, compared with a 7.9% increase posted a month earlier.

There was no way higher gas prices was not going to start this kind of a cascade, and now the question is what is the Bank of Canada going to do about interest rates?

The interesting number I see is that food, the one commodity that I would have been positive was very affected by high gas prices only was up 1.2%, which seems odd (or maybe it just hasn’t gone through the system yet).

Stay tuned folks looks like a bumpy ride ahead!

Holy cow, interest rates dropped by 0.50% as set by the Bank of Canada, which means it is even easier to borrow money in Canada.

The recent price-level adjustments for automobiles and the effect of past changes in indirect taxes will keep measured inflation below target through 2008. The emergence of excess supply in the economy should keep downward pressure on inflation through 2009. Both core and total inflation are projected to move up to 2 per cent in 2010, as the economy moves back into balance. There are both upside and downside risks to the Bank’s new projection for inflation; these risks appear to be balanced.

In line with this outlook, some further monetary stimulus will likely be required to achieve the inflation target over the medium term. Given the cumulative reduction in the target for the overnight rate of 150 basis points since December, the timing of any further monetary stimulus will depend on the evolution of the global economy and domestic demand, and their impact on inflation in Canada.

Is this really a good thing?

Good Things about Interest Rate Cuts

Some things that are good about this bank rate cut (assuming the banks follow suit with this rate cut):

1. Your monthly payments will get lower if you have a variable rate of interest credit vehicle (e.g. Line of Credit or Secure Line of Credit). Should you lower your monthly payments? NO! Keep them at the level they currently are, and you start paying down this debt quicker. This is when you get more bang for your bucks!
2. Easier for businesses to borrow money, and thus more chance for expansion and maybe more jobs? Let’s hope that is the case.
3. The stock market looks more attractive an investment vehicle, as interest bearing investment vehicles now pay even less. You should start thinking about consulting with a professional or learn yourself about how to invest intelligently in the stock market (no you won’t learn that here).

Are there downsides to this?

Downsides of Lower Interest Rates

Could there be a downside to this? You bet!

1. Interest bearing investment vehicles which pay next to nothing, now pay even closer to nothing. Bonds and such become even less attractive to invest in. Folks on fixed income that are relying on these type of investments, now may have less disposable income. Maybe take your Grandma out for lunch?
2. People may think it’s a great time to borrow MORE money. Um, NO! If you have been holding off on a big purchase like a house, yes, you may have hit the jackpot here, however, if you are simply refinancing your credit card debt for the Nth time, think again!
3. Your credit card’s monthly interest rate will not be dropping. Isn’t that surprising? The interest rates go up when interest rates go up, however, they don’t drop when interest rates drop. Your pay day loan isn’t going to drop it’s credit rate either.
4. The Canadian dollar will drop in value against the American Dollar, which will translate to higher prices, especially for Gasoline (the root of all price evils).