Pfft. Over.

Nobody expected the big poohbahs in Ottawa to jack rates this week. And they didn’t. But everyone in a land where mortgages increase by $400 million a week should pay attention. The times, they are changing. And the central bank just caved.

So the big immediate news is an abrupt, shocking, unexpected halt to that crazy bond-buying. A cut of 50% was expected. But we got 100%. This means the active, ongoing federal suppression of yields now ends. Mr. Market will determine what the cost of money should be, based on supply, demand and (most of all) inflation. The more the cost of stuff rises, the more value money loses and the more protection investors want in the form of higher yields.

As this pathetic blog has been trying to point out (in vain), this process has been ongoing for months. The yield on a five-year Canada bond has essentially doubled. Inflation is sitting at an 18-year high. The supply chain has two broken legs. Consumer demand is outstripping supply. We’re back at pre-slimy-pathogen employment levels. Dishwashers are getting signing bonuses. Wage pressures are mounting. There aren’t enough cars to sell. And Chrystia is getting tax increases ready. Meanwhile Dog knows what new overhead the Greenpeacey federal environment minister will bring back from the land of Scotch.

In short, inflation is not temporary as the Bank of Canada boss once believed. And admits it. The road is leading us to higher interest rates, maybe starting in the spring. For sure by summer. Five-year mortgages now at 2.5% may be 1% higher by this time in 2022 and at least another 1% above that when all the buyers in 2020 and 2021 renew.

Alas, this is no longer just the yammering of some anon, canine-addled (but manly) Internet dude. Economists now agree. Mortgage guys are witnessing it. The CB confirms it. The stimulus spigot has closed after gushing for almost two years.

Says the bank: we anticipated higher inflation months ago, “but the main forces pushing up prices – higher energy prices and pandemic-related supply bottlenecks – now appear to be stronger and more persistent than expected. Core measures of inflation have also risen, but by less than the CPI. The Bank now expects CPI inflation to be elevated into next year.”

The CB agrees about wages and jobs, too: “As the economy reopens, it is taking time for workers to find the right jobs and for employers to hire people with the right skills. This is contributing to labour shortages in certain sectors, even as slack remains in the overall labour market.”

And ditto for the supply chain: “In the face of strong global demand for goods, pandemic-related disruptions to production and transportation are constraining growth.  Inflation rates have increased in many countries, boosted by these supply bottlenecks and by higher energy prices.”

This is a big day. Quantitative easing kaput. The inflation threat confirmed. An admission rates will rise in 2022. Plus the bank says it misjudged rising costs as we move into a period of huge growth – 6.5% globally and 5% here in the land of maple and Tim’s.

Immediately after the announcement, by the way, the yield on five-year Canada bonds jumped almost 10 basis points, to 1.502%. And while that sounds puny, it’s not. That is a 12% surge and it’s a harbinger every borrower should heed.

To wit…

Source: Investing.com; GreaterFool Research Dept.

It’s all over but the wailing and gnashing. Remember the inverse correlation between real estate values and interest rates. It should now be obvious what lies ahead.

About the picture: “The blog posts are top notch as always and getting better all the time. Hard to believe it’s been over 10 years and the stories, ideas, and messages stay fresh and interesting.
Anyway, here’s a picture of “Louie”, a 2 year old Chihuahua rescue that my daughter and son-in-law adopted. He appears harmless but is a viscous, barking, growling, territorial junkyard watch dog!
Thanks again for everything.”