Statistics Canada announced that in the month of February, the inflation rate actually dropped. If you need to revisit grade 11 economics, then you can check out the wiki inflation definition here. The inflation rate and mortgage rates, specifically variable mortgage rates, have a very close relationship and it is worthwhile to understand how inflation affects your variable rate mortgage.
Among the most important statistics that the Bank of Canada rely on to make their decision on the prime rate is the rate of inflation. Rising inflation is a sure sign that there is too much money in the economy. The Bank of Canada will increase the prime rate to make borrowing money more expensive which will, in turn, decrease the number of dollars in the economy which is one of the main causes of rising prices. The opposite is also true. As we head into recession or periods of consumer-driven fear, the Bank of Canada will use their monetary policy to lower the prime rate, which makes borrowing money cheaper and encourages consumers to spend.
If you are currently in the market for a mortgage and considering fixed over variable, a headline like “Low Inflation” should jump out and grab your attention. While there is always the possibility that the prime rate can increase, low inflation makes it very unlikely and a variable rate mortgage an attractive option.
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