The Bank of Canada is on a break, everyone. It passed on a chance to raise rates on Wednesday while it monitors inflation to see if the recent easing trend holds. If yes, we could see rates fall by the end of the year or early next. If no, rates will have to go higher.
Your perspective on this uncertainty depends on whether you’re most focused on borrowing costs or the return on safe money parked in savings. Regardless, knowing what’s likely to happen with rates would be a help in planning your finances.
It’s rarely been harder to make economic predictions than it is today because we’re still working our way through the economic disruptions caused by the pandemic. There are no clear precedents to guide forecasters. Instead, they must rely on indicators that you can follow yourself in some cases. Here are five of them to keep your eye on:
The inflation rate: Statistics Canada tracks inflation through its Consumer Price Index, which is updated monthly. The next update, for February, will be released March 21. Look for a decline from the 5.9 per cent level of January, which was down from 6.3 per cent in December. The recent peak for inflation was 8.1 per cent in June 2022.
The unemployment rate: Given all the economic stress right now, the current 5 per cent unemployment rate is strikingly low. If we see steady increases in the jobless rate, that’s a sign of a weakening economy in need of lower rates. Statistics Canada tracks the job market through its labour force survey, which will be updated next on Friday.
Wages: The pace of wage gains is one of the big factors in assessing what’s happening with inflation. Average hourly wages rose 4.5 per cent on a year-over-year basis in January, down from a recent peak of 5.8 per cent in November. Wage gains are a big win for workers, but a resumed upward trend would definitely alarm the Bank of Canada. Wage gains are included in the monthly unemployment reports.
GDP: Economic output, as measured by gross domestic product, is another indicator of the level of inflationary pressure. GDP was unchanged in the fourth quarter of last year, but is expected to pick up in early 2023.
The bond market: Rates in the bond market, referred to as bond yields, can be viewed as the best guess about what’s ahead for rates. We’ve seen a rise in yields in recent weeks, which suggests some pessimism about central banks lowering rates any time soon. lower bond yields would help clear the way for lower fixed-rate mortgages. Track bond yields on the Bank of Canada’s website.
Feeling climate anxiety?
Gen Z and millennials, does climate change affect how you spend your money? If climate anxiety has affected financial decisions like where you live, how you invest or how you spend, we’d like to hear your story for a future episode of the Stress Test personal finance podcast. Please e-mail kfulton@globeandmail.com.
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Rob’s personal finance reading list
The next wave of homebuyers
There’s no sign of lower mortgage rates right now, but the number of people seeking online mortgage quotes for a home purchase is way up. Could the house boom resume?
GICs vs HISAs vs bonds
An investment company looks at various interest rate outlooks and picks winners and losers from among guaranteed investment certificates, high interest savings accounts and bonds. Scroll down to find this analysis.
Thoughts on how much cash to keep in your chequing account
A Reddit discussion on how people manage their cash and savings, including the amount of money they keep in chequing accounts paying little or no interest.
Bypass your bank to save on forex fees
All about a strategy called Norbert’s Gambit that allows you to convert Canadian dollars into U.S. currency in your investment account without paying the usual fees. It’s not quick to do, but the savings can be significant.
Ask Rob
Q: I’m curious how annuity rates have increased over the past couple years as interest rates have increased.
A: Annuity payouts are influenced by interest rates, which have soared in the past 12 months. I covered this in a recent column where someone in the insurance business said now is probably one of the best times in recent times to consider an annuity.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
The 25 best free trials for streaming services, music and games.
The money-free zone
A shout-out to Canadian Lance Stroll, who placed sixth last weekend in the first Formula One race of the year despite having a broken wrist and toe. Bike accident. If you haven’t caught the great Netflix show Formula One Drive to Survive, the latest season is available for your viewing pleasure.
Listen to this
Two RBC economists talk about why groceries are still so expensive, even as the overall inflation rate is easing.
In case you missed these Globe and Mail personal finance-related stories
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- Can Noah, 61, and Amelia, 59, afford to retire next year?
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where’s the happiness? • Who should and shouldn’t worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don’t make this potentially costly assumption about the CPP Survivor’s pension
