Of course, few of us are large financial institutions making multimillion-dollar overnight loans to each other. So overnight interest is of little practical interest. Luckily, the Bank of Canada also tracks the “weekly effective household interest rate,” which is a mix of various rates, including. It’s currently at 3.64 per cent. This week last year it was at 2.56 per cent. So it’s up 108 basis points or a little over one percentage point.
But there’s also a thing called the inflation rate. Last March it was running at 2.2 per cent, just a tad above the Bank of Canada’s target for it. This March it was at 6.7 per cent — many, many tads above target. So: interest rates have gone up a little but inflation has gone up a lot. What that means is that despite the bank’s monetary tightening real interest rates have gone. “Real interest rates” sounds deeply philosophical. “What does it mean to be ‘real’?, the metaphysicist asked.” In fact, real interest rates are simply regular interest rates adjusted for inflation — though the idea is easier than the actual calculation.
Instead, the quick and sloppy method for calculating real interest rates is to subtract the inflation rate. Last spring, using the numbers mentioned above, an interest rate of 2.56 per cent, minus inflation of 2.2 per cent, meant a real interest rate of 0.46 per cent. This spring, an interest rate of 3.64 per cent minus inflation of 6.7 per cent gives a real interest rate of -3.06 per cent.
Doing little but QE since 2007 has consequences.
Uggh. You sure this is worthy of a retweet, Andrew? Yes, the title looks promising, but the content is mostly descriptive and contextual with hardly any analysis.
Poll: Should 🇨🇦 ban “interest”? ⚠️ “interest” forbidden by God
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