Another Michael Deane Screed: Inflation? Bank of Canada Heal Thyself

Enter the stage, another episode of the Michael Deane screed (aka The Real Scene with Michael Deane)—a written dance on the economic tightrope we find ourselves traversing. In the latest act, we witness the intriguing saga of inflation, a tale where the Bank of Canada plays a leading role, holding the power to heal or inflict pain. As the numbers in October cooled to a somewhat respectable 3.1%, still a distant cry from the Bank’s 2% utopia, it’s time to don our economic stethoscopes and dissect the symptoms.

Economists, in their infinite wisdom, often opt to exclude the temperamental duo of groceries and gasoline from their inflation calculations. And lo and behold, these two seem to have decided to take a breather, leaving the spotlight to a surprise guest—housing. With a 6% inflation rate, housing is not just stealing the show; it’s rewriting the script, doubling the official inflation rate with unabashed flair.

Herein lies the crux of the biscuit: the Bank of Canada’s monetary policy, a well-intentioned superhero fighting inflation elsewhere, seems to have inadvertently (like they didn’t see it coming) become the architect of an expensive homeownership and rental market. If housing, influenced by the Bank’s interest rates, disrupts the inflationary balance, it might be prudent for the hero to reconsider its strategy.

A patient wait is in order (I am patient enough to wait for November’s inflation rates), but one cannot help but wonder if the Bank’s medicine is indeed curing or causing more ailment. Interest rate hikes, diligently put in place months and years ago, have proven effective on numerous fronts, except for…housing. And let’s not forget, dear readers, housing is not just any battleground; it’s the heart of most Canadians’ financial lives.  You want bet me $5 on this?  I wouldn’t recommend it: our collective mortgage debt is greater than our GDP: https://www.cbc.ca/news/business/household-debt-gdp-1.6852027.  Uhm that’s a lot.

Everyone listen. Do you hear that slow, steady, grinding sound?  That is the sound of a bunch of Canadians every week going into their bank to renew their 5-year mortgage that has come up.  Som come away with sizable growth in their payments (with less to spend on other thingies that make economies tick) or extended amortizations (meaning, they will have greater debt later in life, also affecting the economy, just not now) Grind, grind, grind.  It happens every week that goes by. It doesn’t btw in the US, where mortgage terms are 25 years.  So, if I were a betting many on which of the two economies will do better in 2024, guess where my shekels are.

So, amongst these economic moves and counter-moves, the spotlight turns to the Bank of Canada. As the conductor of interest rates, it holds the power to heal us from the inflationary fever or, inadvertently, to prolong our economic malaise.

In the spirit of constructive criticism, it’s high time for a recalibration. Adjust the instruments, tweak the dials, and let’s redirect the gaze toward the housing conundrum.

As the Bank of Canada wields influence in the ongoing saga of inflation, let’s hope for a performance that acknowledges its role as the main contributor to current inflation, not its remedy.

Coda: how does this affect relocation?

Housing inflation in the Great White North has become the ultimate party pooper for relocation enthusiasts. Trying to move domestically? Good luck with that! Selling your home has turned into a Herculean task, leaving employees stuck in limbo, twiddling their thumbs as “For Sale” signs gather dust. And what’s worse? Those homes, hanging around like loners at a high school dance, are driving up the costs of temporary accommodations. Extensions upon extensions are granted, turning short-term stays into seemingly eternal hotel bills that make you question your life choices.

But wait, there’s more! The cherry on top of this relocation bad dream is the rising cost of those temporary units themselves. It’s a double whammy, folks. You stay longer and you pay more per night.   All of this just bleeds money from relocation programs and therefore bottom lines.

And let’s not forget the global impact. Prospective recruits, drawn to Canada’s allure, click their way to Canadian cities only to recoil in horror at the prospect of spending their entire salary on a shoebox in Toronto. They promptly close their browser, leaving Canada to mourn the loss of potentially game-changing skill sets. Employers, eager to attract international talent, adjust salaries to cover exorbitant housing costs, impacting profitability.

Even global companies, sending their jet-setting foreign assignees to the Great White North, are feeling the pinch. Those heroes of the corporate world, who keep the economic wheels turning smoothly, are now facing the daunting prospect of absurdly high housing costs. Guess what? They’re not thrilled about it. Canada, once a beacon of opportunity, is losing its shine as companies weigh the pros and cons of setting up shop in a country where housing prices are more inflated than a parade balloon.

So, there you have it – the Canadian housing market, making relocation feel like a bad breakup.

Hey, Bank of Canada, can you hear us over the din of soaring real estate prices? We’re not just losing talent; we’re losing our groove, our mojo, and maybe even our marbles. The corporate piggy bank is hemorrhaging dollars, and productivity is doing a disappearing act faster than a magician’s bunny. So, dear Bank of Canada, if a glimmer of hope appears in November’s inflation figures, don’t idle—take action! Be the hero, not the antagonist. You possess the capability to remedy this real estate fever; why not be the solution rather than the problem?

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