Q&A: How the relationship between rate hikes and inflation plays out

Mortgage costs have been going up, as interest rate hikes make mortgages more expensive, and they’re one of a few components of inflation data directly related to interest rates, explained David Macdonald, senior economist with the Canadian Centre for Policy Alternatives.Start your day with a roundup of B.C.-focused news and opinion delivered straight to your inbox at 7 a.m., Monday to Friday.

However, the more connected a certain category is to outside or international effects, such as extreme weather or geopolitical turmoil, the less likely they are to be brought down in price by interest rate hikes. Macdonald said food and gas prices, which were up 10.1 per cent and 17.8 per cent over last year in October, are prime examples of this.

But Macdonald said with inflation showing itself to be persistent, the bank is becoming more likely to raise rates by more than a quarter of a percentage point in its next round. It’s not a question of whether inflation will subside, but rather when and how quickly, said Macdonald.

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