Stagflation and what it means to your Variable Mortgage rate

Woke up this morning to a wonderfully written article in the Province newspaper entitled "Stagflation rears its head" written by John Morrissy from the Financial Post.

I'm going to put it in layman's terms for you. Stagflation could be the economy's ultimate catch 22 situation. For those of you who have not seen that movie, please do yourself a favour and see it, classic.
Stagflation is a cross of economic stagnation and inflation to create this new word. It is when the Unemployment rate is high as well as the Inflation rate. What this means is that when the policy makers try to  assist with fighting inflation, what they in turn are doing might worsen economic stagnation and vice versa.

So what to do?

A darn good question and I am sure open to debate from both sides. Here is a neat fact. The index they use to measure the Stagflation is called a "Misery Index." is there anything to that name....?

Mark Carney now finds himself in an uncomfortable position. If he raises rates to offset the inflation he risks killing any momentum, and driving the unemployment rate higher than the 7.9% that it is at right now. And on the flip side the alternative isn't much better.

In fact, from this article it is suggested that the unemployment rate in Canada might be 8% on average for the forseeable future.

If Mr. Carney chooses to raise rates as his weapon of choice, then your Variable rate mortgage may increase as well, as the Major Banks in Canada tend to follow suit right away. If he chooses to let it ride out then you will be able to take advantage of this product for that much longer.

As always, contact your Mortgage Expert to determine your best strategy moving forward. If you don't have one, feel free to contact me and I will do my best to guide you through these turbulent times and onto the path of not having a mortgage someday.

Take care as always,

KO