Imagine if your child’s school had double the number of kids on its waitlist than the number of enrolled students. You’d say that clearly, the school was doing something right and that if so many parents wanted to send their kids there, they should get more funding, or hire more teachers, so that more children could actually attend this school.

Well, that’s not the reality for not just one school, but an entire sector of schools in Alberta. In the 2021-22 school year, there were more than 10,500 children enrolled in charter schools, yet there are approximately 20,000 children waiting for a spot in one of Alberta’s 17 charter schools. That’s 2.7 percent of all K-12 students in the province. This space crunch has been going on for years. Back in 2015, Foundations for the Future Charter Academy alone had an 11,000-strong waitlist while its student population was 3,500. Even as new charter schools open and existing schools expand, demand is outstripping supply by a huge margin.

So why are so many children and families stuck in educational limbo, crossing their fingers and hoping they’ll get one of the highly-coveted spots in these schools? Despite their 29-year track record of success, the charter school sector is still subject to numerous restrictions on focus, growth, and program offerings that don’t apply to all other public, separate, and independent schools. Certain rules have been dropped in recent years, including the arbitrary cap of 15 charter schools and the ban on multiple-campus schools. But this isn’t enough. The province needs to lift the remaining restrictions, including the most egregious one: the prohibition on more than one charter school per teaching philosophy.

Allowing only one charter school in the province to offer a specific teaching philosophy is outdated and defies logic. First and foremost, Alberta is a big province. It does not make sense to refuse a girls-only charter school in Fort McMurray, simply because one already exists in Calgary. This became a live issue in 2022 when parents in the rural community of Holden, southeast of Edmonton, came together to open a charter school. Initially, they had wanted the school to focus on rural education, but because another charter school—Valhalla Community School, near Grande Prairie—already offers this pedagogy, they were denied. No child in Holden had the option of making the twelve-hour, 1,215km daily round-trip to Valhalla.

Thankfully, Holden Rural Academy was able instead to offer place-based education and opened this past fall with great success. But the illogical problem remains. And forget geography for a moment—why can’t there simply be two competing charter schools in the same region, offering the same pedagogy? Perhaps one will do a better job. Perhaps one will have a slightly different approach to parental involvement, or homework, or gym class. There is no justification for preventing those options from existing and for stifling innovation and a multitude of choices. 

Alberta also needs to lift its ban on charters offering home education programs (which public, separate, and independent schools are permitted to do), as well as the ban on being faith-based. All these rules lack sound rationale—and they are clearly out of step with the wishes and desires of tens of thousands of parents across Alberta.

Ultimately, parents want options–school types like rural education, and music education, and back-to-basics learning, and languages, and STEM studies. They also want a smaller, more local education experience. That’s unique to charters since they are accountable to the education minister and to a school-specific board of directors, not school trustees governing over public districts who must manage the competing priorities and interests of districts with (often) 100,000-plus students.

And ultimately, parents’ instincts are right, because charter schools are good not just for their children, but for society. They offer unique and creative ways of inspiring learning in children. They inspire a plethora of program offerings not only by themselves but also by fostering competition and innovation in the independent and public school systems.

Demand for charter schools is here to stay—it’s time for Alberta’s regulations to catch up.

Next week the Bank of Canada will announce its third rate decision of the year. After signaling a pause in further tightening, it is unlikely to move off its current 4.5 percent policy rate.

But inflation is currently at 5.2 percent, far above the Bank’s target range of 1 to 3.

So why would our central bank pause further increases while inflation remains so high?

Two reasons: first, inflation pressures have likely already ended, despite the high headline rate most coverage focuses on; and second, it takes time for interest rate hikes to have their full effect—and today, thanks to the large number of variable rate mortgages out there, it might take longer than usual.

On the first point, the data is crystal clear.

Excluding volatile components like food and energy, and excluding the policy-driven increase in mortgage interest costs, inflation is consistently within or below the target range for most of the past seven months.

Excluding these items doesn’t mean they don’t matter, to be clear. Increases in the price of any item can strain household budgets. But excluding volatile components provides a better indication of where inflation may be headed. Excluding mortgage interest costs also narrows our focus to prices determined by supply and demand rather than policy. 

But even including food and energy, prices have increased at an average annualized rate of less than 0.3 percent over the past three months and only 2.5 percent over the past six months.

The reason reported inflation remains so high isn’t because prices are rapidly rising. Instead, it’s because the calculation reflects all of the monthly price changes for the past year.

So despite the sharp recent decline in the pace of price increases, we have to wait until the large increases in the first half of 2022 fall out of the calculation. If recent trends continue, though, we could see close to normal rates of inflation by this summer—so there may be no more need for the Bank to tighten further.

The second point—that rising rates take time to fully affect the economy—is even more important. Especially today.

Higher interest rates affect our spending in several ways. Borrowing is more expensive, so we spend less on items that we typically use debt to purchase (such as vehicles, renovations, new homes, and so on). Higher rates also make many of us poorer (look at home prices recently), which leads to lower spending. 

Recent estimates suggest that each one percentage point increase in the Bank’s policy rate tends to decrease consumption spending by 1.7 percent—but this effect can take well in excess of two years to fully materialize. 

Today, another channel may complicate this picture and lead to even longer lags than usual.

When rates rise, people pay more to service their debt and so have less to spend on other things. Those with variable rate mortgages are particularly exposed, but not right away.

Many households with variable rate mortgages—which account for roughly one-third of all mortgages, and most of which have fixed payments—now have monthly payments that are less than what they owe in interest. Depending on the Bank, somewhere between one-fifth and one-third of all outstanding residential mortgages are in this situation.

The result: instead of the total amount owing going down as payments are made, their mortgages are actually growing each month. This “negative amortization”, as it is called, will continue until rates decline. And when these mortgages come up for renewal, monthly payments may have to rise significantly to make up for it. 

In effect, variable rate mortgages shift some of the burden of recent rate increases well into the future. And there were a lot of such mortgages issued right before the tightening cycle began. In fact, a majority of new mortgages had variable rates.

Much depends on the path of future rates, of course, but consider someone on a variable rate fixed payment mortgage that started at one percent on a five-year initial term. If they renew at three percent at the end of their term, monthly payments could rise by roughly one-third or more. On a $400,000 original mortgage, I estimate that could mean an extra $500 to $600 per month more than what they paid during the first five years. 

It will take several more years for recent rate increases to fully affect these borrowers.

Of course, one option to avoid a sharp increase in payments may include extending the mortgage amortization at the time of renewal.^{1Be sure to talk with a professional advisor or mortgage broker; I’m not providing any advice here, just illustrating some general issues.} But even this comes with significant, though somewhat hidden, additional interest costs over the life of the now-longer mortgage.

Either way, thanks to the larger number of variable rate mortgages out there, pressure on many households to lower spending may continue even long after rates fall back to normal levels. 

The Bank of Canada’s job is never easy; it is especially difficult today.

A pause in any further rate increases is entirely warranted, and we may even see cuts in the not-too-distant future. But since rate hikes over the past year may have unusually long-lasting consequences for Canada’s economy, our central bank’s job of managing recent disruptions is far from over.