OTTAWA – Canada’s inflation rate has returned to the country’s target range after a tumultuous couple of years of soaring prices.
Statistics Canada reported on Tuesday that inflation fell to 2.8 per cent in June, down significantly from the eye-popping peak of 8.1 per cent reached last summer.
That’s within the country’s one to three per cent inflation target and, as Finance Minister Chrystia Freeland has boasted, the lowest inflation rate in the G7.
But despite the good news, the Bank of Canada is still in inflation-fighting mode and seems more likely to raise interest rates further than cut them anytime soon.
Earlier this month, the central bank raised its key interest rate again by a quarter percentage point, bringing its key rate to five per cent. At the time, the most recent inflation reading showed the annual rate had fallen to 3.4 per cent in May.
Though the decline in inflation was praised by governor Tiff Macklem, he also issued a warning that the central bank is ready to raise interest rates further if needed.
Given the progress made so far, the Bank of Canada’s hawkishness might seem confusing: why raise interest rates even more when inflation has fallen so significantly?
After all, economists know there’s a lag in monetary policy, which means interest rate hikes can take between one to two years to fully affect the economy.
A key element of the answer lies in the Bank of Canada’s commitment to hit the midpoint of its target range.
The central bank has been adamant that it’s aiming for two per cent inflation: not more and not less.
New projections from the Bank of Canada suggest the steady progress made on inflation over the last year will stall. The central bank now expects Canada’s inflation rate to hover around three per cent over the next year, before falling to two per cent by mid-2025.
That means it will take six months longer than the bank previously expected to get back to target.
The Bank of Canada justified its last rate hike in part by pointing to this new projection, which also signals that interest rates are likely to stay higher for longer.
Private-sector economists also expect getting inflation back to two per cent will be challenging and will entail some hiccups along the way.
That’s because core measures of inflation – which strip out volatility and are better at gauging underlying price pressures – are still high.
Lower gasoline prices are responsible for much of the deceleration in inflation so far, while other prices are still rising rapidly. Excluding gasoline prices, Canada’s inflation rate would have been 4.0 per cent in June.
The Bank of Canada’s two preferred core measures of inflation that it tracks closely also show inflation hasn’t eased as much as it might appear, hovering at 3.7 and 3.9 per cent last month.
And with the economy so far outperforming what the central bank and forecasters were anticipating for 2023, the Bank of Canada says it felt it needed to take rates higher.
The central bank’s aggressive approach has not been without pushback, particularly from labour groups and left-leaning economists who have called out the rate hikes as punishment for workers.
Higher interest rates are meant to slow the economy down, which would ultimately come with some job losses.
That’s in addition to the hurt being felt by many homeowners, such as those with variable-rate mortgages or those with fixed-rate mortgages that are coming up on renewal.
In a client note sent Friday, CIBC deputy chief economist Benjamin Tal lays out why the Bank of Canada would prefer being more hawkish than dovish with inflation.
“Give the Bank of Canada two choices: inflation or a recession, and the Bank will take a recession any day. The reason is that central banks have a lot of experience and effective tools to fight recessions, while rising inflation expectations are a central banker’s worst nightmare,” Tal wrote.
“The practical implication of this asymmetric game is that the Bank of Canada is biased.”
The Bank of Canada has repeatedly admitted to that bias in its monetary policy reports, where it lays out risks to its forecasts. It has said on multiple occasions that it’s more concerned that inflation might be stickier than expected than it is about the risk of a global recession, given inflation was already high.
Tal said that bias likely drove the Bank of Canada to overshoot with interest rates as early as in June. But as signs of a weakening economy grow, the economist said the central bank will have to back off at some point.
“The Bank of Canada might hike again in September, but soon enough the current disinflationary forces will be too noticeable to ignore, even for a biased bank.”
This report by The Canadian Press was first published July 23, 2023.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
