Lower gas costs slowed U.S. inflation for a second straight month in August, but most other prices across the economy kept rising – evidence that inflation remains a heavy burden for American households.
Consumer prices rose 8.3 per cent from a year earlier and 0.1 per cent from July. But the jump in “core” prices, which exclude volatile food and energy costs, was especially worrisome. It outpaced expectations and ignited fear that the Federal Reserve will boost interest rates more aggressively and raise the risk of a recession.
Fuelled by high rents, medical care and new cars, core prices leaped 6.3 per cent for the year ending in August and 0.6 per cent from July to August, the government said Tuesday. Furniture and sports gear, among many other items, also got costlier, suggesting that businesses are still raising prices in response to robust consumer demand.
The breadth of the price increases dashed hopes, at least for now, that core inflation would moderate. Economists tend to track core prices for a clearer read on where inflation is headed.
Stock prices sank and bond yields jumped on the worse-than-expected core figures, with many investors fearful that the Fed will tighten credit even more vigorously in its drive to curb inflation. The Dow Jones Industrial Average tumbled 900 points in midday trading.
Further Fed rate hikes could weaken growth so much as to push the economy into a recession. Some economists now expect the Fed to raise its benchmark short-term rate, currently in a range of 2.25 per cent to 2.5 per cent, to 4.5 per cent or higher by early next year. That would make it even harder for the central bank to meet its goal of achieving a “soft landing,” whereby it would tame inflation without causing a recession.
“This was a disappointing report,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “It raises the risk of higher interest rates and a hard landing for the economy.”
Chair Jerome Powell is expected to announce another big increase in the Fed’s key rate next week, which will lead to higher costs for consumer and business loans.
Inflation is higher than many Americans have ever experienced, escalating families’ grocery bills, rents and utility costs, among other expenses. It has deepened gloom about the economy despite strong job growth and low unemployment.
Republicans have sought to make inflation a central issue in the midterm congressional elections. They blame President Joe Biden’s US$1.9-trillion stimulus package passed last year for much of the increase. Many economists generally agree, though they say that snarled supply chains, sharp pay increases and Russia’s invasion of Ukraine have also been key factors in the inflation surge.
At the same time, the drop in gas prices – for consumers, perhaps the most visible barometer of inflation – could bolster Democrats’ prospects in the midterm elections. It may already have contributed to slightly higher public approval ratings for Mr. Biden.
In a statement Tuesday, the President said, “Overall, prices have been essentially flat in our country these last two months. That is welcome news for American families, with more work still to do.”
In his speeches, Mr. Biden has generally stopped referring to the impact of inflation on family budgets. He has instead highlighted his administration’s recent legislative accomplishments, including a law enacted last month that’s intended to reduce pharmaceutical prices and fight climate change.
Nationally, the average cost of a gallon of gas has dropped to US$3.71, down from just above US$5 in mid-June. But grocery prices have continued to rise rapidly, jumping 0.7 per cent from July to August. In the past year, they have soared 13.5 per cent – the biggest 12-month increase since 1979.
Chicken prices have risen nearly 17 per cent in the past year. And egg prices surged 2.9 per cent just in August from July and are up nearly 40 per cent from a year ago.
Worsening food inflation is a particular strain on lower-income families, more of whom have had to turn to food banks and other aid as inflation has worsened. Mary Jane Crouch, executive director of America’s Second Harvest of Coastal Georgia, which works with a network of food banks, said 38 per cent more food was distributed in August compared with July.
Though much of the food is donated, Ms. Crouch said her organization buys some of it and has faced sharp increases in meat and dairy prices in the past few months.
And the prices of many other goods are still rising even as supply chain snarls unravel, said Ms. Rosner-Warburton, the MacroPolicy economist.
“Companies are still putting through large price increases for those goods, and that’s problematic,” she said. It means the Fed will likely have to work harder to slow consumer spending through higher rates.
Elaine Buckberg, chief economist at General Motors, said Friday that the pandemic disruptions to overseas production of semi-conductors, which have slowed auto output, have significantly dissipated and that overall supply chain disruptions have improved about 80 per cent from the worst days of the pandemic.
Yet Americans are still desperate for cars, Dr. Buckberg said, which has allowed dealers to keep their markups much higher than prepandemic levels. New car prices, which rose 0.8 per cent in August, have climbed nearly 11 per cent in the past year.
“Virtually every vehicle that gets to a dealer has already been sold to someone,” she said.
Continuing price increases for raw materials – and labour – have left many small businesses struggling. Some are raising their own prices to keep up, only to then lose customers, according to a survey by Goldman Sachs 10,000 Small Business Voices.
Meaghan Thomas, co-owner of Pinch Spice Market in Louisville, Ky., an online seller, has avoided raising prices for the past two years but worries that that can’t last if inflation worsens.
The price to ship spices from overseas has quadrupled, she said, and she’s seen little relief so far despite reports that such costs are declining. The cost of spices, which Ms. Thomas and her partner grind and blend in a small factory, have jumped by as much as 25 per cent in the past year.
The company’s profit margin has been cut by half, Ms. Thomas said, but she and her partner think it’s important to keep their products affordable. She says larger companies have made inflation worse by raising prices unnecessarily.
“We can hang on for a little bit if all these other companies can stop raising their prices,” she said.
Wages are still rising at a strong pace – before adjusting for inflation – which has elevated demand for apartments as more people move out on their own. A shortage of available houses has also forced more people to keep renting, thereby intensifying competition for apartments.
As a result, rental costs jumped 6.7 per cent in August from a year earlier, the most since 1986. Rents change much more slowly than commodity prices such as gas. That could mean that apartment prices will keep inflation elevated well into 2023.
Other data from companies such as Apartment List, which tracks prices of new apartments and leases, suggest that rental price inflation is starting to decline. But that data takes time to filter into the government’s measure, which tracks all rents.
Ms. Rosner-Warburton said it’s not clear if those declines, when they do start to affect the government’s measure, will slow inflation enough for the Fed.
“At this point, we need to see it to believe it,” she said.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
/cloudfront-us-east-1.images.arcpublishing.com/tgam/ZRORJTDJAZP7DB47YYFHBA5ATQ.JPG)
