The world’s big central banks are set to enter into a new phase of lower interest rate rises this week as inflation eases down from its peak.
But, spurred by fears that inflation in the US, Europe and the UK remain well above target, monetary policymakers are signalling they are still planning to continue raising rates to bring inflation back to its pre-pandemic levels.
And, while this week’s expected rate rises of 0.5 per cent in all three regions are below recent increases of 0.75 per cent, they will be bigger than the rate increments carried out by the US, Europe and the UK central banks before this year’s inflation surge.
Silvia Ardagna, chief European economist at Barclays Bank, said: “Inflation is decelerating and the pace of rate rises is smaller, but central banks are still going to be hiking by larger amounts than [the 0.25 percentage points we have been used to] historically.”
The US headline figure out on Tuesday is expected to show a slowdown to 7.3 per cent in November, from 7.7 per cent in the previous month and way below the June peak of 9.1 per cent. In the UK, data out on Wednesday is expected to show headline CPI inflation slowing to 10.9 per cent in November from a 41-year high of 11.1 per cent in the previous month.
Jennifer McKeown, chief global economist at Capital Economics, said that while inflation was likely to fall “much lower” over the course of next year, there were big question marks as to whether price pressures would moderate in line with central banks’ targets of about 2 per cent.
In the eurozone, core inflation — which excludes changes in the price of energy, food and tobacco — remained at an all-time high of 5 per cent in November. In the US, the core measure dipped by only 0.3 percentage points to 6.3 per cent in November, from a 40-year high in the previous month.
Nathan Sheets, global chief economist of Citi, said persistent inflation in the services sector, combined with sustained, albeit slower, rate rises and rolling recession, would be “the bad news for next year”.
Maintaining monetary tightening is set to prove more and more of a communications challenge for central bankers as economies on both sides of the Atlantic shrink — partly because of the jumbo rate rises that central banks have made over the course of 2022.
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Officials now appear more attuned to the risks associated with squeezing the economy too forcefully. Jay Powell, the chair, has said that while the Federal Reserve will do what is necessary to bring inflation back down to its longstanding 2 per cent target, the central bank does not want to damp demand excessively and drive the US economy into recession.
“My colleagues and I do not want to overtighten,” he said at an event hosted by the Brookings Institution think-tank at the end of last month.
But the danger that inflation might cease falling at far higher levels than 2 per cent will lead the Fed to lift its benchmark policy rate by half a percentage point on Wednesday.
The decision, which will raise the federal funds rate to a target range of 4.25 per cent to 4.5 per cent, comes after four straight rises of 0.75 percentage points.
Investors betting that the Fed could cut rates in 2023 are likely to have those hopes dashed, despite the slowdown in the pace of rate rises. Fed officials have signalled that rates will remain at “elevated levels” for the duration of next year.
Other major central banks, including the Bank of England and the European Central Bank, are also expected to slow the pace of their rate rises later this week — while remaining serious about bringing inflation under control.
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The BoE on Thursday is set to raise interest rates by 0.5 percentage points to 3.5 per cent, signalling the battle against price and wage rises is not yet complete.
Several members of the ECB governing council have said in recent weeks they expect to settle on a 0.5 percentage point rise on Thursday, not least because the bloc’s economy is on the brink of recession and policy rates are already at their highest level since the 2008 financial crisis.
The decision follows two consecutive 0.75 point increases that have taken its deposit rate to 1.5 per cent.
Observers also expect ECB president Christine Lagarde to push back against the idea that interest rates will remain at the 2 per cent level they are likely to hit this week. “Next week’s step-down to 50 basis points is likely to be paired with a clear message that the tightening job is not done yet,” said Sven Jari Stehn, chief European economist at Goldman Sachs.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
