Monday, December 7, 2009

Inflation...what the...

I recently had a great conversation with a friend who is a financial planner. His feedback concerning inflation mirrored my opinions on where interest rates are heading in 2010.

One of the main indicators for inflation over the next year will be the price of oil. This opinion makes a lot of sense as it takes time for the increased cost of oil to show up in our groceries, plastic packaged items, toys and so on, even if the higher cost of oil shows up immediately at the pump. But the higher the cost of oil over a sustained amount of time, the more likely this will have an impact on our figures for inflation.

We'll likely see an increase in the price of oil sometime late next year as economies gain momentum. As a result we should expect inflation to start trickling into the system shortly after that, with the bulk of the increase in 2011. So for people wondering if they should renew their mortgages early or consider a variable rate, it's important to remember that the fixed rates will move up based on the expectations for inflation - so making a move before 2011 may be a wise decision.

With the Bank of Canada likely not to move their rates much until 2011, we may see a giant spread between variable and fixed mortgage rates. So don't take your eye off the ball if you want to have a fixed rate with a stable payment. Consider locking-in sometime around the summer of 2010.