Following in Economic Footsteps

Just as we’ve seen in the United States and the United Kingdom, it now seems as though shopping in Canada has become a national pastime — the retail sales figures jumped almost seven percent from June of last year on an annualized basis. Canadians were out shopping again, after something of a break during the month of May.

In light of this, it seems as though the Bank of Canada finally has the push it needs to decide that Canadians can afford an increase in interest rates. The Bank has not raised its interest rates since October 2004. Yes, we Canadians are following in the footsteps of the U.S. and the UK.

Canadians could see a jump in rates starting on September 7 of this year, when the bank next meets to discuss the economy.

“Over all, Canadian [gross domestic product] for the second quarter has been firming, and this report adds yet another log to the fire,” Toronto-Dominion Bank economist Eric Lascelles said in a note to clients. “As it stands now, the economy appears to be modestly outperforming the Bank of Canada’s forecast of 2.3 percent growth, which in turn all but guarantees a rate rise on Sept. 7, given the bank’s earlier comments about removing monetary stimulus in the near term.”

The rising price of gas hiked up spending by 1.9 percent from the month of May, while deals in the auto industry prompted an increase of 7.4 percent in sales at the dealerships. In fact, given the new employee pricing incentives now being offered at Canadian dealerships, we could very well see sales rise even more, upwards of another seven percent as compared to June, according to preliminary reports.

Other areas in the retail industry also saw a boost in sales, which could lead to a jump in economic growth in the country.

David Dodge, the Bank of Canada governor, will be keeping an eye on further economic reports in the next few days while determining what the market can handle in terms of a rate hike. Too high of an increase could allow inflation to get out of hand. An inflation report is expected by the end of the week, which will allow the bank a further look at inflation risks in the country.

So there you have it, Canadian interest rates are set to rise and yet home sales continue to boom — a recipe for a major economic slowdown if I ever saw one.