It’s been two years since the Bank of Canada started the most aggressive interest rate hike campaign in its history in a bid to tame rampant inflation, and the Canadian economy looks vastly different.
As the Bank of Canada delivered the first of what would be 10 interest rate hikes over the course of the tightening cycle on March 2, 2022, it flagged fresh concern about impacts from Russia’s unprovoked invasion of Ukraine, a conflict that was barely a week old at that point.
A central bank statement at the time noted the economy’s roaring recovery from the COVID-19 Omicron variant shutdowns and fears of what new mutations to the virus could bring.
And as inflation was accelerating – it would rise from 5.1 per cent at the start of 2022 to a 41-year peak of 8.1 per cent in half a year – prices in Canada’s housing markets had hit an all-time high ahead of pronounced correction.
The substantial cooling of the economy has come thanks in part to the 4.75 percentage points of hikes to the Bank of Canada’s policy rate, which stands at 5.0 per cent.
Global News
Ahead of the Bank of Canada’s next rate decision on March 6 and on the second anniversary of the first rate hike of the cycle, Global News spoke to economists about what’s changed since the tightening began and where the central bank’s quest to tame inflation goes next.
While efforts to restore price stability without crashing the economy have largely been successful, experts – and the Bank of Canada’s top policymakers themselves – concede that the tightening cycle has not been perfect.
Inflation underestimated
Two years since the Bank of Canada’s initial 25-basis-point interest rate hike, inflation has cooled significantly. The annual rate of inflation last clocked in at 2.9 per cent in January, and the central bank’s latest forecasts have price pressures cooling back to the two per cent target sometime in 2025.
Those projections have been off-base in the past.
Think back to the summer of 2021, when the global economy was recovering from COVID-19 shutdowns and fervent consumer demand led to supply chain snarls that drove up prices on cars and other goods.
“We expect the factors pushing up inflation to be temporary, but their persistence and magnitude are uncertain, and we will be watching them closely,” Bank of Canada governor Tiff Macklem said that July as he laid out the central bank’s forecasts.
At that time, the bank expected inflation would ease back to the two per cent target sometime in 2022 and maintained its commitment to Canadians that it would keep interest rates at rock-bottom lows in a bid to boost the pandemic recovery.
There were a few things that the Bank of Canada couldn’t have predicted then: global shortages of critical inputs like semiconductors, Russia’s invasion of Ukraine and the impact of future COVID-19 variants, to name a few.
But Stephen Brown, deputy chief North America economist at Capital Economics, says it’s clear today that the Bank of Canada underestimated inflation in the early going and waited too long to start its hiking cycle.
“It should have started six months earlier, to be honest. That was when inflation was picking up,” he tells Global News.
Avery Shenfeld, chief economist at CIBC, tells Global News that the strength of inflation globally in this cycle caught many central banks by surprise.
“We knew that some of it was caused by supply chain disruptions (and) the war in Ukraine. But perhaps it was a little too much confidence that all of that would disappear on its own accord,” he says.
Had the Bank of Canada started its hiking cycle earlier, it’s possible the benchmark interest rate would not have needed to rise quite so high to effectively tame inflation, Shenfeld adds.
“But I think it’s fair to say that that same mistake was made by central banks around the world,” he says.
Criticisms that the Bank of Canada waited too long to raise the low interest rates that stimulated the economy during the pandemic are not controversial today – even Macklem agrees.
“If we knew everything a year ago that we knew today, yes I think we should have started tightening interest rates sooner to withdraw the stimulus,” he told MPs at the time, adding that stimulus was “an important factor that generated a very strong recovery.”
Housing market fluctuations
One of the starkest differences in the Canadian economy since the start of the tightening cycle is the strength of the housing market.
In the first two years of the COVID-19 pandemic, the Bank of Canada’s rock-bottom interest rates offered buyers cheap access to financing, helping to spur a monumental run in the housing market.
CREA’s home price index, a more like-for-like property comparison, shows an overall price drop of 12.1 per cent between January 2022 and 2024 across the country.
But the housing correction has not been linear. This time a year ago, the market was heating up amid a “conditional pause” in the Bank of Canada’s rate hike cycle as the central bank waited to see whether it had raised interest rates enough to tame inflation.
Brown says the run-up in housing market activity last spring sent prices shooting back up another 10 per cent or so before the Bank of Canada returned to the hiking table with a pair of back-to-back increases of a quarter-percentage point in June and July.
“I think the real surprise was the extent of that rebound,” he says.
But Shenfeld says it’s even “debatable” whether those two so-called insurance hikes were really necessary.
When the Bank of Canada came off the sidelines in June, it was responding to strong economic data from the first quarter of 2023, he says. That proved to be a “one-quarter wonder,” he says, and the economy was in fact already starting to slow amid lagged impacts from previous rate hikes before the 50 basis points of additional tightening.
Shenfeld says he doesn’t think an extra half-percentage point on the policy rate did “tremendous harm,” with the economy still proving resilient today. He says it’s even possible that the extra tightening will mean the Bank of Canada can pivot to rate cuts sooner than if it had left the policy rate at 4.5 per cent – a scenario monetary policymakers have also pitched during the cycle as “front-loading” rate hikes.
Economic strength holds up
While inflation and higher interest rates have stung many Canadians, particularly the most vulnerable, Shenfeld says households in general are holding up well in the face of tougher economic conditions.
Homeowners who have had to renew their mortgages in the higher interest rate environment have largely been able to find extra money to make those payments so far. Shenfeld cites this a significant reason why “prices haven’t plunged” in the housing market, with owners not forced to sell their homes en masse.
The households that took out the cheapest fixed mortgages on five-year terms in 2020 and 2021 have yet to face the renewal shock, he notes, and may skirt the worst of it if the policy rate drops before their contracts are up.
The latest real gross domestic product (GDP) data from Statistics Canada on Thursday shows that the country has, at least so far, avoided falling into a recession.
Brown says that’s a remarkable feat, given the growing chorus of forecasters this time last year who were expecting the Canadian economy to tip into recession under the weight of higher interest rates.
He says the Bank of Canada “got lucky” with a boost in population during the tightening cycle as processing the backlog of visa applications from the pandemic brought a surge of newcomers into the country, helping to keep the economy from a more severe downturn. But he also offers the central bank kudos for a job well-done to date.
“It appears we’ve achieved a soft landing and inflation will be heading back to two per cent by the end of this year,” Brown says. “So it’s certainly performed quite well on any objective scorecard.”
Much of the relief in inflation has come from the unclogging of supply chains that drove the initial spike in prices two years ago, Shenfeld says. But he also adds that higher interest rates have helped to relieve some of the tightness in the labour market, alleviating inflationary pressures.
Shenfeld also says the Bank of Canada did a “reasonably good job” taming inflation, which historically has required a “big recession” to put the lid back on price growth.
“They would certainly get no worse than a B-plus. Maybe if they’d started a little earlier, we’d be giving them an A,” he says.
But Shenfeld also notes that we’ll have to see how the central bank sticks the landing before handing out final grades.
Where do inflation and the policy rate go from here?
Where the cost of living continues to pinch Canadians most of all is on the shelter side of inflation, Brown notes, with higher mortgage payments and climbing rents continuing to put pressure.
Shelter inflation accelerated in the latest reading from StatCan, up to 6.2 per cent in January from 6.0 per cent the month earlier.
But Brown says that without the impact of mortgage interest costs – tied to the Bank of Canada’s own higher policy rate – inflation would already be back at the two per cent target.
“It just shows you that the bank’s job really is done on everything else. We’re not seeing much in the way of inflation pressures elsewhere,” he says.
Brown forecasts shelter inflation will cool meaningfully by 2025 amid expectations that immigration will slow from the record highs of previous years, taking some of the pressure off rents.
Macklem has said the Bank of Canada is looking for confidence that inflation will continue to decline all the way back to target, but he said annual inflation doesn’t have to be at exactly two per cent before the central bank can consider lowering the policy rate.
Despite January inflation figures coming in well below expectations, the Bank of Canada is widely expected to hold rates steady at its upcoming decision on March 6.
More on Money
After Thursday’s GDP print showed weak but still positive growth in the economy, most big bank forecasters have called for interest rate cuts to begin in June, though some projections still have an April cut in the cards and others see July as more likely.
When the easing cycle does begin, Macklem has warned Canadians that the days of ultra-low interest rates seen during and before the COVID-19 pandemic are not likely to return.
Brown and Shenfeld say the Bank of Canada is likely to deliver roughly two percentage points of cuts in the years ahead before holding at a “neutral rate” of around three per cent at the end of the cycle.
For Canadians seeing the economy slow around them and anxiously awaiting interest rate cuts, Shenfeld advises patience. Two years in, the Bank of Canada’s tightening cycle has come a long way, but it’s not over yet.
“First, the economy slows, the unemployment rate moves up a little bit, and the lower inflation is the reward that comes last in that process,” he says.
“We don’t want to conclude that it’s not working because we don’t yet have two per cent inflation. It’s just going to take a little longer to get there.”
TORONTO – Will Taylor Swift bring chaos or do we all need to calm down?
It’s a question many Torontonians are asking this week as the city braces for the arrival of Swifties, the massive fan base of one of the world’s biggest pop stars.
Hundreds of thousands are expected to descend on the downtown core for the singer’s six concerts which kick off Thursday at the Rogers Centre and run until Nov. 23.
And while their arrival will be a boon to tourism dollars — the city estimates more than $282 million in economic impact — some worry it could worsen Toronto’s gridlock by clogging streets that already come to a standstill during rush hour.
Swift’s shows are set to collide with sports events at the nearby Scotiabank Arena, including a Raptors game on Friday and a Leafs game on Saturday.
Some residents and local businesses have already adjusted their plans to avoid the area and its planned road closures.
Aahil Dayani says he and some friends intended to throw a birthday bash for one of their pals until they realized it would overlap with the concerts.
“Something as simple as getting together and having dinner is now thrown out the window,” he said.
Dayani says the group rescheduled the gathering for after Swift leaves town. In the meantime, he plans to hunker down at his Toronto residence.
“Her coming into town has kind of changed up my social life,” he added.
“We’re pretty much just not doing anything.”
Max Sinclair, chief executive and founder of A.I. technology firm Ecomtent, suggested his employees avoid the company’s downtown offices on concert days, saying he doesn’t see the point in forcing people to endure potential traffic jams.
“It’s going to be less productive for us, and it’s going to be just a pain for everyone, so it’s easier to avoid it,” Sinclair said.
“We’re a hybrid company, so we can be flexible. It just makes sense.”
Swift’s concerts are the latest pop culture moment to draw attention to Toronto’s notoriously disastrous daily commute.
In June, One Direction singer Niall Horan uploaded a social media video of himself walking through traffic to reach the venue for his concert.
“Traffic’s too bad in Toronto, so we’re walking to the venue,” he wrote in the post.
Toronto Transit Commission spokesperson Stuart Green says the public agency has been working for more than a year on plans to ease the pressure of so many Swifties in one confined area.
“We are preparing for something that would be akin to maybe the Beatles coming in the ‘60s,” he said.
Dozens of buses and streetcars have been added to transit routes around the stadium, and the TTC has consulted the city on potential emergency scenarios.
Green will be part of a command centre operated by the City of Toronto and staffed by Toronto police leaders, emergency services and others who have handled massive gatherings including the Raptors’ NBA championship parade in 2019.
“There may be some who will say we’re over-preparing, and that’s fair,” Green said.
“But we know based on what’s happened in other places, better to be over-prepared than under-prepared.”
Metrolinx, the agency for Ontario’s GO Transit system, has also added extra trips and extended hours in some regions to accommodate fans looking to travel home.
A day before Swift’s first performance, the city began clearing out tents belonging to homeless people near the venue. The city said two people were offered space in a shelter.
“As the area around Rogers Centre is expected to receive a high volume of foot traffic in the coming days, this area has been prioritized for outreach work to ensure the safety of individuals in encampments, other residents, businesses and visitors — as is standard for large-scale events,” city spokesperson Russell Baker said in a statement.
Homeless advocate Diana Chan McNally questioned whether money and optics were behind the measure.
“People (in the area) are already in close proximity to concerts, sports games, and other events that generate massive amounts of traffic — that’s nothing new,” she said in a statement.
“If people were offered and willingly accepted a shelter space, free of coercion, I support that fully — that’s how it should happen.”
This report by The Canadian Press was first published Nov. 13, 2024.
TORONTO – Hundreds of Taylor Swift fans lined up outside the gates of Toronto’s Rogers Centre Wednesday, with hopes of snagging some of the pop star’s merchandise on the eve of the first of her six sold-out shows in the city.
Swift is slated to perform at the venue from Thursday to Saturday, and the following week from Nov. 21 to Nov. 23, with concert merchandise available for sale on some non-show days.
Swifties were all smiles as they left the merch shop, their arms full of sweaters and posters bearing pictures of the star and her Eras Tour logo.
Among them was Zoe Haronitis, 22, who said she waited in line for about two hours to get $300 worth of merchandise, including some apparel for her friends.
Haronitis endured the autumn cold and the hefty price tag even though she hasn’t secured a concert ticket. She said she’s hunting down a resale ticket and plans to spend up to $600.
“I haven’t really budgeted anything,” Haronitis said. “I don’t care how much money I spent. That was kind of my mindset.”
The megastar’s merchandise costs up to $115 for a sweater, and $30 for tote bags and other accessories.
Rachel Renwick, 28, also waited a couple of hours in line for merchandise, but only spent about $70 after learning that a coveted blue sweater and a crewneck had been snatched up by other eager fans before she got to the shop. She had been prepared to spend much more, she said.
“The two prized items sold out. I think a lot more damage would have been done,” Renwick said, adding she’s still determined to buy a sweater at a later date.
Renwick estimated she’s spent about $500 in total on “all-things Eras Tour,” including her concert outfit and merchandise.
The long queue for Swift merch is just a snapshot of what the city will see in the coming days. It’s estimated that up to 500,000 visitors from outside Toronto will be in town during the concert period.
Tens of thousands more are also expected to attend Taylgate’24, an unofficial Swiftie fan event scheduled to be held at the nearby Metro Toronto Convention Centre.
Meanwhile, Destination Toronto has said it anticipates the economic impact of the Eras Tour could grow to $282 million as the money continues to circulate.
But for fans like Haronitis, the experience in Toronto comes down to the Swiftie community. Knowing that Swift is going to be in the city for six shows and seeing hundreds gather just for merchandise is “awesome,” she said.
Even though Haronitis hasn’t officially bought her ticket yet, she said she’s excited to see the megastar.
“It’s literally incredible.”
This report by The Canadian Press was first published Nov. 13, 2024.
OTTAWA – Via Rail is asking for a judicial review on the reasons why Canadian National Railway Co. has imposed speed restrictions on its new passenger trains.
The Crown corporation says it is seeking the review from the Federal Court after many attempts at dialogue with the company did not yield valid reasoning for the change.
It says the restrictions imposed last month are causing daily delays on Via Rail’s Québec City-Windsor corridor, affecting thousands of passengers and damaging Via Rail’s reputation with travellers.
CN says in a statement that it imposed the restrictions at rail crossings given the industry’s experience and known risks associated with similar trains.
The company says Via has asked the courts to weigh in even though Via has agreed to buy the equipment needed to permanently fix the issues.
Via said in October that no incidents at level crossings have been reported in the two years since it put 16 Siemens Venture trains into operation.
This report by The Canadian Press was first published Nov. 13, 2024.
