What goes up must come down, but if you’re waiting for deflation to begin any time soon, you may be in for a long wait.
Inflation — and the increasing interest rates designed to put a pin in it — is top of mind for every economist right now, and Farm Credit Canada’s chief economist is no different.
J.P. Gervais says that rising interest rates will slow down demand and help curb inflation, but the timeline could stretch out for 18 months or more.
And what about those interest rates? The U.S. Federal Reserve posted an aggressive .75 point hike last round — is it a foregone conclusion that Canada will do the same? Not necessarily, Gervais says, in the interview below.
“I am not so sure that we’re gonna get a 75 basis point [increase]. I think it’s still a coin flip,” he says. “But I guess at the end of the day, you know, whether we get a 75 basis point increase in July, or whether we get to 50, and then three more consecutive rate increases, you’re looking at 175 basis points by the end of the year.” (more after the audio)
Gervais adds though, that he believes the market will right itself and get inflation under control, adding that it’s important to know that the market is pricing in these hikes as we go.
Most farmers want to know, if they have loans coming up for renewal, if now is the right time to lock in rates. Is it foolhardy to expect a market slow down to bring rates down in the short term, or is the risk that the rates keep trending higher? Right now, if you lock in rates, it’s at a more expensive price point than even six to eight months ago
“This is a tricky question for a lot of businesses,” he says.