Despite Subdued Inflation,

The Cost To Finance Your Debt Could Be Going Higher On Wednesday

Statistics Canada released their latest reading for the Consumer Price Index last Friday, which fell from 2.8% in August to 2.3% in September. Most of the move was in gasoline prices which shot up last September (2017) following hurricane Harvey, and are no longer being part of the full year equation. Transportation costs were up 3.9% over the 12 months since last September vs. the 7.2% increase recorded over the 12 months that ended in August:

Most of the modified CPI data that the Bank of Canada follows is now at or about 2%, year over year, right at their target.

But the Bank of Canada appears ready to push interest rates up by 1/4% on Wednesday, as "business prospects appear to be robust" from their most recent Business Outlook Survey and the resolution for NAFTA / USMCA takes some uncertainty out of the outlook for economic growth going forward. This despite reports of slower Canadian retail sales and wholesale trade for August.

Bank's prime lending rates are likely, then, to be pushed within a hair of 4%. If you have variable interest mortgages or lines of credit based on prime, you will be paying more to service your debt. 

If you borrow to invest, the costs are going up too. 

There is a reason that investors are selling assets (stock and bond markets are lower),  and that is that the cost to borrow to invest in those assets is rising and sellers are taking risk off the table because they no longer are comfortable borrowing against assets with falling prices. 

Leverage multiplies the losses on the way down as much as it does the gains on the way up.

Friends, when interest rates go up, pay down your debt as much as you can (and take risk off of the table). It is a simple signal and one to be taken at face value. We (at High Rock) have seen all of this before, a few times in fact. It is part of the late stages of the economic and investing cycle.