30 Sep

Is Bank of Canada too fixated on core inflation?

General

Posted by: Angela Calla

OTTAWA— Globe and Mail Blog

Posted on Friday, September 30, 2011 6:29AM EDT With policy makers around the world scrambling to prevent another global recession, worrying about inflation is a bit like fighting the last war.

Many top central banks, particularly the U.S. Federal Reserve and the Bank of England, are putting inflation-fighting efforts on hold as they struggle to keep fragile recoveries alive. Nobody wants a repeat of what happened to the European Central Bank in the summer of 2008, when an ill-timed overreaction to wildly high energy prices made it impossible for the euro zone’s economy to avoid falling into recession.

Policy makers in economies that are arguably more secure are being cautious, too.

Bank of Canada Governor Mark Carney, for instance, last week indicated he’ll ignore hotter-than-expected price gains for the foreseeable future, what with bigger fish to fry like keeping the economy as insulated as humanly possible from a frightening range of external threats.

Nonetheless, the Bank of Canada’s inflation-targeting mandate is up for renewal this fall, something that only comes around every five years. And though most agree the bank’s current agreement with the Finance Department — under which policy makers aim to keep prices advancing at an annual rate of about 2 per cent — has served the country well, it never hurts to strive for improvement.

So, you can expect a lot of chatter in the coming weeks about whether, and how, the new five-year agreement should tweak the central bank’s goals, or how the central bank might re-jig its own interpretation of its mandate to suit changes in the global economy that affect price trends at home.

The latest contribution to this debate comes from one of the few places in the country that studies central banking in depth, the Toronto-based C.D. Howe Institute, and its argument is intriguing.

First, some background.

Achieving price gains of roughly 2 per cent typically means Canada’s central bank adjusts interest rates to ensure the annual rate of “headline’’ inflation is at that target level a year or two down the road. To avoid responding too aggressively to what often turn out to be short-term swings in things like energy and food prices, it uses a “core” measure of inflation — which excludes eight items including gasoline and produce — as an “operational”’ guide to broader, longer-lasting price trends.

During the spring and summer, this approach gave Mr. Carney the flexibility to ignore inflation hawks as they argued that domestic conditions screamed out for higher borrowing costs, regardless of the escalating signs of trouble from abroad. More specifically, although the headline rate of inflation, currently 3.1 per cent, has been above 2 per cent for several months, Mr. Carney has said for much of that time that it and the core rate will “converge’’ at the target sometime next year, when temporary factors that are keeping headline inflation higher fizzle out.

But in a new paper for the institute, economists Philippe Bergevin and Colin Busby question the reliability of core inflation in signalling actual price trends — especially in light of demographic trends and resource scarcity, both of which suggest energy and food prices, while lower than a few months ago, will be lofty for many years.

“Long-term economic trends suggest that some of the components excluded from core — notably, those related to food and energy — could be more subject to continuing positive price shocks,’’ the authors note. “Strong population growth, coupled with the continued industrialization of countries such as China and India, will ensure that scarce goods such as gasoline, fruits and vegetables are vulnerable to future price increases. Even if one does not place weight on these projections, the fact remains that core gives misleading signals if and when excluded components are subject to persistent shocks.’’

The core rate, then, may be giving “`misleading signals’’ that higher inflation now will moderate sooner than it really will. Therefore, the authors argue, the central bank should “consider de-emphasizing’’ core inflation as it assesses price trends and explains its actions to the public.

Much of the paper is very tough for non-economists to grasp, even journalists like me who spend half their time decoding econo-speak, so I leave it to you to read it for yourself.

And, again, this is hardly a front-burner issue these days, given the more urgent need to make sure economies around the world continue to grow. But once the global economy is back out of the woods, questions about whether there are better ways for the central bank to measure and communicate inflation trends may get louder.

22 Sep

A BOC rate reduction in the works and tax credits??

General

Posted by: Angela Calla

Bank of Canada Governor Mark Carney expects the Canadian economy to grow through the rest of this year and signaled Tuesday he stands ready to use a variety of tools and policy options to ensure stability.

 In a speech to the Saint John Board of Trade, Carney also said the European debt crisis is “fixable”, but urged a comprehensive recapitalization of European banks and a funding backstop for sovereign debt.

 Speaking as the debt-stressed eurozone came under increasing strain, he said Canada is more threatened by the US where the economy is “close to stall speed”, but not likely to fall into recession.

 He emphasized that the central bank has flexibility to respond to any external shocks, but fell short of signaling an interest rate cut.

 Click here for the full Financial Post article.

Tune into The Mortgage Show with Angela Calla Saturdays @ 7pm on CKNW or call 604-802-3983 to see how this information can help you specifically

www.angelacalla.ca

8 Sep

Keeping on track with savings

General

Posted by: Angela Calla

Sometimes it’s hard to keep track of all the things we’re “supposed” to do with our money.

 

If you’re feeling overwhelmed, it can help to start by focusing on a smaller list of things that you shouldn’t do.

 

Click here for a list of money mistakes to avoid from MoneySmartLife.com.

8 Sep

Interest saving meal plan, chew on this….

General

Posted by: Angela Calla

An interest-saving meal plan.

 Some 47% of Canadians say eating out less would help them save more. Sounds logical, since frequent diners can drop $100+ a pop at a decent restaurant.

But what if that same $100 was redeployed, once a month, as a mortgage prepayment?

The result is appetizing in its own right. A standard $200,000 mortgage is paid down 13% quicker – in just 21.75 years instead of 25 years.

For more tips on how to save on your mortgage or for a review call 604-802-3983

Angela Calla Mortgage Team

Host of The Mortgage Show on CKNW AM980 Saturdays @ 7pm

 

7 Sep

BOC holds steady

General

Posted by: Angela Calla

 

 Good Morning,

As antisipated the lending rate has held steady, meaning no change to your variable rate mortgage or line of credit payment. The full report can be read on this link http://www.bankofcanada.ca/2011/09/press-releases/fad-press-release-2011-09-07/

Tara and Allan of Port Moody this week contacted us for a mortgage review after being introduced to us from their parents and we saved them $998.00 a month and structured the new mortgage for tax efficency taking an additional 13 years off of the mortgage over and above the monthly savings. This has helped them plan for retirement a decade early and a trip to celebrate. If you or anyone you care about has a mortgage over 4%, carrying outside debt or simply would like a review please introduce us over an email and we are happy to see how we can help.

Enjoy the week,

Angela Calla, AMP
Mortgage Expert
Host of “The Mortgage Show” on CKNW AM980 Saturdays at 7pm

 

Phone: 604-802-3983
Fax: 604-939-8795

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