Good morning,

The Bank of Canada could use a little help.

In the fight against inflation, central banks, including Canada’s, have been left to do the “dirty work” of easing demand by raising interest rates, says a new study by CIBC Economics.

Yet more belt tightening by governments would accomplish the same thing, and have benefits for the economy that are not occurring by letting the Bank of Canada do all the heavy lifting, write CIBC economists Avery Shenfeld and Andrew Grantham.

The Bank of Canada raised its benchmark interest rate again last week to 4.75 per cent and economists believe another hike is likely. They also see rates staying higher for longer, with CIBC pushing its forecast for the first rate cut to June of next year.

“If the job of engineering that slowdown is left only to the Bank of Canada, monetary policy will have to squeeze on growth for a longer period than we previously thought,” said the economists.

Fiscal policy could do more to help “cool off the fire.”

Though pandemic support programs have now wound down, cheques are still going out to households. Ottawa’s “grocery rebate” could lift the country’s gross domestic product in the second quarter by 0.4 per cent, said the economists.

“While much of the spending was labelled as a way of helping households with the costs of living, the bump up in transfers went above and beyond inflation and represented stimulus in real terms,” they said.

Government has also contributed to the overheated labour market, a key concern for the Bank of Canada. Gains in public sector employment have surpassed the private sector, pushing down the jobless rate, they said.

The economists say federal and provincial governments are missing an opportunity to address deficits and reduce debt, while helping the Bank put a damper on growth.

“One way or another we will need to go through at least a stall in growth to get inflation back to the 2 per cent target,” they wrote.

“So the drag from fiscal restraint would be offset by the ability to chart a softer course on interest rates, by cancelling further hikes we might still face and bringing forward the timing for some interest rate reductions.”

Because there are downsides to leaving all the cooling to the Bank of Canada.

Interest rate hikes hit the housing market first, including home construction.

“That’s hardly ideal in an environment in which a shortage of housing is pressuring apartment rents and the overall cost of home ownership,” they said.

Canada’s high household debt also increases the risk of a nasty fallout the longer higher rates continue.

“Mortgage renewals for Canadians in 2024 and 2025 could be a significant risk to household financial stability if the Bank of Canada hasn’t sufficiently eased policy by then,” they said.

Higher borrowing costs also put a damper on businesses’ capital spending, when investing to improve productivity would lower inflation by reducing costs and labour demand.

“It’s not too late to consider a fiscal policy shift,” said the economists.

“At a minimum, this isn’t the year for finance ministers who find a bit more money in their coffers at mid-year to look for new ways to spend it or dole it out for households.”

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Home prices aren’t the only thing that determines whether you can afford a house. Property taxes vary greatly across the country and if you’re thinking of a move checking the municipality’s rate is always a good idea. According to a study by online realtor Zoocasa — which brought us today’s chart — the four lowest rates in Canada are found in British Columbia. Vancouver, Abbotsford, Kelowna and Victoria all have property tax rates under 0.5 per cent.

Compare that to Winnipeg, where the 2.6439 per cent tax rate is the highest in the country. On the average home worth $344,600, homeowners here can expect to pay $9,111 a year in taxes, more than double the amount paid in Edmonton, Quebec and Calgary.

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Canadian borrowers received an unpleasant surprise when the David Rosenberg: The Bank of Canada may rue its recent interest rate hike by another quarter percentage point on June 7, bringing it to 4.75 per cent, up from 0.25 per cent in March last year.

Canada’s commercial banks were quick to follow suit, hiking their prime rates to 6.95 per cent.

It has been the most rapid and aggressive interest rate hiking cycle in recent memory, and it may not be done yet.

What does this mean for Canadians with mortgages?

Leah Zlatkin, a mortgage broker and rates expert, answered your questions on the housing market, variable vs fixed rates and term lengths on video.

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Today’s Posthaste was written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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