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June 17, 2024
On June 5, 2024, Bank of Canada announced a key interest rate cut – the first BOC rate cut since March 2, 2022 – lowering the rate to 4.75%. BOC cited evidence of easing inflation which led the Governing Council to decide that its “monetary policy no longer needs to be as restrictive”, adding that there is increased confidence inflation will continue to move toward BOC’s 2% inflation target. Tiff Macklem, BOC Governor, has hinted that Canadians can expect more rate decreases if inflation continues to ease.
BOC raised the baseline interest rate 10 times between March 2022 and July 2023, then held the rate at 5% (Source: “Canada Interest Rate”, Trade Economics) until June 5. In 2022, Canada’s CPI peaked at 8.1% – the highest rate of inflation in 39 years.
What Did Interest Increases Mean to Businesses and Consumers?
For businesses, high interest rates:
- Increase the cost of borrowing and the cost of current debt
- Affect cash flow and liquidity
- Make leases more expensive
- Increase the cost of inventory, equipment, raw materials and services required to run a business
- Increase labour costs: workers demand more so they can keep up with inflation
- Force businesses to recoup some losses by increasing their own product and service rates
For consumers, high interest rates:
- Increase the cost of homeowners’ current variable rate mortgages
- Make new variable and fixed rate mortgages more expensive
- Increase the cost of home rentals (i.e. apartments, houses)
- Increase the cost of almost everything! (e.g. groceries, fuel, household goods, health costs, services)
Read “Getting Squeezed: The Impact of Rising Prices for Housing and Energy, Interest Rates and Costs on Canadian Consumers and Businesses”, Canadian Chamber of Commerce, February 2024.
Inflation Hurting your BC Liquor or Cannabis Business?
Thrive Liquor & Cannabis Advisors understands the impact that Canada’s rising interest rate have had on BC retail liquor and cannabis businesses. While we can’t do anything about inflation, we can reduce its impact by providing liquor retail operation audits or cannabis store operation audits.
