What Does High Inflation Mean for Mortgage Rates?

Canada's inflation rate has risen to 3.7% for July, marking the third consecutive month that inflation readings have exceeded the Bank of Canada's neutral range of 1.75% to 2.75%. If the elevated consumer prices persist, they could have implications for homeowners in the form of shifting rate-hike expectations. The Bank of Canada believes that high inflation is temporary and that it will ease back to 2% in 2022. However, the Bank may be willing to tolerate high inflation for only so long before a policy response is required. TD Bank senior economist James Marple notes that the Bank may reduce monetary accommodation in response to more lasting price pressures, with rate hikes expected late next year. The bond market predicts one quarter-point rate hike over the next year, and the Bank of Canada is expected to deliver five quarter-point rate hikes in total over the next three years, bringing the overnight rate to 1.50%.