A political historian specializing in monetary crisis describes the situation central banks face today as a “polycrisis.” Jacqueline Best said governments and their regulators are struggling to solve an interlocking mix of problems that includes soaring prices of goods and services.
On June 1, 2022, the Feds implemented the third hike for the year that raised the key interest rate to 1.5%. But on the following day, Deputy Governor Paul Beaudry intimated to the Gatineau Chamber of Commerce that the BoC might double the rates to defeat rising inflation.
Forceful hikes are next
Before its rate-hike campaign began in March 2022, the Bank of Canada hopes to maintain the inflation target range between 1% and 3%. However, core inflation has risen to the highest level in decades. Statistics Canada reported inflation readings of 6.7% and 6.8% in March and April, respectively.
Beaudry said, “We are taking these large steps because inflation has been persistently high, the economy is overheating, and the risk that elevated inflation will become entrenched has increased. The governing council is steadfast in its commitment to return inflation to the two percent target and is prepared to act more forcefully if needed.”
Some economists say a forceful action could mean a 75-basis-point increase in the next round or on July 13, 2022. Meanwhile, Canadian banks are raising more funds through the sale of corporate bonds, and the level is now $168 billion — a $15 billion increase from a year ago.
Yassir Berbiche, treasury head at Desjardins Group, said, “In an uncertain environment, optimizing liquidity and total loss-absorbing capacity (TLAC) ratios becomes important.”
Troublesome price pressures
Beaudry assures Canadians that the Bank of Canada will get inflation back to 2% and will do what’s necessary to get there. However, Paul Ashworth, an economist at Capital Economics, said that rising rates impact on house prices and stocks. He added that durable goods would take a hit next.
Based on the survey results by Nanos Research Group for Bloomberg News, Canadians expect price pressures to rise further and last longer. About 28.5% of respondents expect inflation to rise between 8.1% and 10% in 12 months. Beaudry said the Feds discussed how price pressures continue to surprise on the upside and are broadening, and inflation is likely to move even higher before easing.
Noteworthy investment
Investors with long-term financial goals can consider a real estate stock to earn reliable income streams and hedge against inflation. Crombie (TSX: CRR.UN) trades at $17.17 per share and pays an attractive 5.15%. The $3.03 billion real estate investment (REIT) owns grocery-anchored retail, retail-related industrial, and mixed-use residential properties.
The locations of the properties are in Canada’s top urban and suburban markets. Its president & CEO Don Clow said, “Crombie’s high-quality and primarily grocery-anchored portfolio continued to demonstrate strength in the first quarter of 2022.”
Apart from the committed occupancy of 96.4%, funds from operations in Q1 2022 increased 6.5% to $49 million versus Q1 2022. Also, Crombie has five near-term development projects.
Very real possibility
Bank of America Securities’s economist Carlos Capistran said a 75-basis-point hike in July 2022 is a very real possibility. The Bank of Canada is in a hurry to achieve the 2-3% neutral range.
