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.
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.”
“Communication is one of the most important skills you require for a successful life.” — Catherine Pulsifer, author.
I’m one hundred percent in agreement with Pulsifer, which is why my evaluation of candidates begins with their writing skills. If a candidate’s writing skills and verbal communication skills, which I’ll assess when interviewing, aren’t well above average, I’ll pass on them regardless of their skills and experience.
Why?
Because business is fundamentally about getting other people to do things—getting employees to be productive, getting customers to buy your products or services, and getting vendors to agree to a counteroffer price. In business, as in life in general, you can’t make anything happen without effective communication; this is especially true when job searching when your writing is often an employer’s first impression of you.
Think of all the writing you engage in during a job search (resumes, cover letters, emails, texts) and all your other writing (LinkedIn profile, as well as posts and comments, blogs, articles, tweets, etc.) employers will read when they Google you to determine if you’re interview-worthy.
With so much of our communication today taking place via writing (email, text, collaboration platforms such as Microsoft Teams, Slack, ClickUp, WhatsApp and Rocket.Chat), the importance of proficient writing skills can’t be overstated.
When assessing a candidate’s writing skills, you probably think I’m looking for grammar and spelling errors. Although error-free writing is important—it shows professionalism and attention to detail—it’s not the primary reason I look at a candidate’s writing skills.
The way someone writes reveals how they think.
Clear writing = Clear thinking
Structured paragraphs = Structured mind
Impactful sentences = Impactful ideas
Effective writing isn’t about using sophisticated vocabulary. Hemingway demonstrated that deceptively simple, stripped-down prose can captivate readers. Effective writing takes intricate thoughts and presents them in a way that makes the reader think, “Damn! Why didn’t I see it that way?” A good writer is a dead giveaway for a good thinker. More than ever, the business world needs “good thinkers.”
Therefore, when I come across a candidate who’s a good writer, hence a good thinker, I know they’re likely to be able to write:
Emails that don’t get deleted immediately and are responded to
Simple, concise, and unambiguous instructions
Pitches that are likely to get read
Social media content that stops thumbs
Human-sounding website copy
Persuasively, while attuned to the reader’s possible sensitivities
Now, let’s talk about the elephant in the room: AI, which job seekers are using en masse. Earlier this year, I wrote that AI’s ability to hyper-increase an employee’s productivity—AI is still in its infancy; we’ve seen nothing yet—in certain professions, such as writing, sales and marketing, computer programming, office and admin, and customer service, makes it a “fewer employees needed” tool, which understandably greatly appeals to employers. In my opinion, the recent layoffs aren’t related to the economy; they’re due to employers adopting AI. Additionally, companies are trying to balance investing in AI with cost-cutting measures. CEOs who’ve previously said, “Our people are everything,” have arguably created today’s job market by obsessively focusing on AI to gain competitive advantages and reduce their largest expense, their payroll.
It wouldn’t be a stretch to assume that most AI usage involves generating written content, content that’s obvious to me, and likely to you as well, to have been written by AI. However, here’s the twist: I don’t particularly care.
Why?
Because the fundamental skill I’m looking for is the ability to organize thoughts and communicate effectively. What I care about is whether the candidate can take AI-generated content and transform it into something uniquely valuable. If they can, they’re demonstrating the skills of being a good thinker and communicator. It’s like being a great DJ; anyone can push play, but it takes skill to read a room and mix music that gets people pumped.
Using AI requires prompting effectively, which requires good writing skills to write clear and precise instructions that guide the AI to produce desired outcomes. Prompting AI effectively requires understanding structure, flow and impact. You need to know how to shape raw information, such as milestones throughout your career when you achieved quantitative results, into a compelling narrative.
So, what’s the best way to gain and enhance your writing skills? As with any skill, you’ve got to work at it.
Two rules guide my writing:
Use strong verbs and nouns instead of relying on adverbs, such as “She dashed to the store.” instead of “She ran quickly to the store.” or “He whispered to the child.” instead of “He spoke softly to the child.”
Avoid using long words when a shorter one will do, such as “use” instead of “utilize” or “ask” instead of “inquire.” As attention spans get shorter, I aim for clarity, simplicity and, most importantly, brevity in my writing.
Don’t just string words together; learn to organize your thoughts, think critically, and communicate clearly. Solid writing skills will significantly set you apart from your competition, giving you an advantage in your job search and career.
Nick Kossovan, a well-seasoned veteran of the corporate landscape, offers “unsweetened” job search advice. You can send Nick your questions to artoffindingwork@gmail.com.
MONTREAL – Politics, public opinion and salary hikes south of the border helped push Air Canada toward a deal that secures major pay gains for pilots, experts say.
Hammered out over the weekend, the would-be agreement includes a cumulative wage hike of nearly 42 per cent over four years — an enormous bump by historical standards — according to one source who was not authorized to speak publicly on the matter. The previous 10-year contract granted increases of just two per cent annually.
The federal government’s stated unwillingness to step in paved the way for a deal, noted John Gradek, after Prime Minister Justin Trudeau made it plain the two sides should hash one out themselves.
“Public opinion basically pressed the federal cabinet, including the prime minister, to keep their hands clear of negotiations and looking at imposing a settlement,” said Gradek, who teaches aviation management at McGill University.
After late-night talks at a hotel near Toronto’s Pearson airport, the country’s biggest airline and the union representing 5,200-plus aviators announced early Sunday morning they had reached a tentative agreement, averting a strike that would have grounded flights and affected some 110,000 passengers daily.
The relative precariousness of the Liberal minority government as well as a push to appear more pro-labour underlay the prime minister’s hands-off approach to the negotiations.
Trudeau said Friday the government would not step in to fix the impasse — unlike during a massive railway work stoppage last month and a strike by WestJet mechanics over the Canada Day long weekend that workers claimed road roughshod over their constitutional right to collective bargaining. Trudeau said the government respects the right to strike and would only intervene if it became apparent no negotiated deal was possible.
“They felt that they really didn’t want to try for a third attempt at intervention and basically said, ‘Let’s let the airline decide how they want to deal with this one,'” said Gradek.
“Air Canada ran out of support as the week wore on, and by the time they got to Friday night, Saturday morning, there was nothing left for them to do but to basically try to get a deal set up and accepted by ALPA (Air Line Pilots Association).”
Trudeau’s government was also unlikely to consider back-to-work legislation after the NDP tore up its agreement to support the Liberal minority in Parliament, Gradek said. Conservative Leader Pierre Poilievre, whose party has traditionally toed a more pro-business line, also said last week that Tories “stand with the pilots” and swore off “pre-empting” the negotiations.
Air Canada CEO Michael Rousseau had asked Ottawa on Thursday to impose binding arbitration pre-emptively — “before any travel disruption starts” — if talks failed. Backed by business leaders, he’d hoped for an effective repeat of the Conservatives’ move to head off a strike in 2012 by legislating Air Canada pilots and ground crew to stick to their posts before any work stoppage could start.
The request may have fallen flat, however. Gradek said he believes there was less anxiety over the fallout from an airline strike than from the countrywide railway shutdown.
He also speculated that public frustration over thousands of cancelled flights would have flowed toward Air Canada rather than Ottawa, prompting the carrier to concede to a deal yielding “unheard of” gains for employees.
“It really was a total collapse of the Air Canada bargaining position,” he said.
Pilots are slated to vote in the coming weeks on the four-year contract.
Last year, pilots at Delta Air Lines, United Airlines and American Airlines secured agreements that included four-year pay boosts ranging from 34 per cent to 40 per cent, ramping up pressure on other carriers to raise wages.
After more than a year of bargaining, Air Canada put forward an offer in August centred around a 30 per cent wage hike over four years.
But the final deal, should union members approve it, grants a 26 per cent increase in the first year alone, retroactive to September 2023, according to the source. Three wage bumps of four per cent would follow in 2024 through 2026.
Passengers may wind up shouldering some of that financial load, one expert noted.
“At the end of the day, it’s all us consumers who are paying,” said Barry Prentice, who heads the University of Manitoba’s transport institute.
Higher fares may be mitigated by the persistence of budget carrier Flair Airlines and the rapid expansion of Porter Airlines — a growing Air Canada rival — as well as waning demand for leisure trips. Corporate travel also remains below pre-COVID-19 levels.
Air Canada said Sunday the tentative contract “recognizes the contributions and professionalism of Air Canada’s pilot group, while providing a framework for the future growth of the airline.”
The union issued a statement saying that, if ratified, the agreement will generate about $1.9 billion of additional value for Air Canada pilots over the course of the deal.
Meanwhile, labour tension with cabin crew looms on the horizon. Air Canada is poised to kick off negotiations with the union representing more than 10,000 flight attendants this year before the contract expires on March 31.
This report by The Canadian Press was first published Sept. 16, 2024.
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
