Each month, inflation has been increasing in intensity. Canada’s inflation rate reached 7.7% in May, a record for the country. This is another multi-decade high. Analysts expect June’s inflation figures to be as high as 8%. Canadians are worried about the recent price increases.
To control inflation, the Bank of Canada (BoC), has introduced several interest rate increases. To date, the Bank of Canada (BoC) has not seen any tangible changes in interest rates.
The BoC was inspired by the resilience of inflationary circumstances to increase its monetary policy tightening. Canadian central banks announced an unprecedented 100 basis point increase in benchmark rates. This brought the overnite interest rate up to 2.5%.
Following the US Fed’s 75-basis-point interest rate hike in May, economists anticipated a similar rate hike here, but the BoC announcement has surprised everyone. Canadians are already facing rising living costs and now face a significantly reduced borrowing power.
The BoC wants to reduce inflation to 2% but it seems impossible.
Central banks can only control inflation by increasing interest rates. To ease financial pressure on the people, however, the BoC had the to keep historically low interest rates during the pandemic.
Inflation was allowed to rampant due to the influx of stimulus money into the economy. The BoC cannot reverse time to implement interest rate increases. Canadians will have the consequences of higher interest rates until inflation drops.
It would be unwise to reduce interest rates as inflation has a greater long-term impact on economic growth than slowing it down. Recessionary fears are real, but a prolonged contraction of economic activity is unlikely in the short term. Canadians cannot deny that inflation will be there for some time, and that interest rates will likely rise in the future.
You may find that redistributing your capital to reduce the economic impact is the best way to preserve your finances. Dividend investing The dividend stock has seen a lot of popularity in recent years. I will be discussing one dividend stock to add to your portfolio to generate passive dividend income.
Dividend yielder Enbridge
Enbridge Inc. (TSX.ENB), (NYSE.ENB), is a Canadian multinational pipeline firm with a $109.1 million market capitalization. Enbridge, headquartered in Calgary and responsible for transportation of hydrocarbons throughout North America, owns and operates a large pipeline network.
It also owns and operates a regulated natural gas utility business and Canada’s most significant natural gas distribution company. The company plays a vital role in the region’s economy.
Enbridge has profited from higher energy prices and a booming financial sector. Enbridge stock trades at $53.85 per share as of writing and boasts an impressive 6.39% dividend yield.
The stock is now down almost 10% from its 52 week high. However, its lower valuation has led to an increase in its dividend yield. Despite the low performance of energy stocks on this day, TSXEnbridge, one of the key players in energy, is well-positioned to continue paying shareholder dividends.
Record inflation is due to higher energy prices. It is possible to minimize the effects of the economic crisis on your investment portfolio by investing income-generating assets that will pay high-yielding, dividend-paying dividends. Enbridge stock could be a good investment at the current level. You can lock in high-yielding dividends as well as capital appreciation when the economy recovers.