Business

Bank of Canada worried government spending could impede inflation fight

Published

11 months ago

November 8, 2023

Harry Miller

More rate hikes may be required, central bankers say in summary of deliberations

Bank of Canada governor Tiff Macklem. Photo by Sean Kilpatrick/The Canadian Press

The Bank of Canada’s decision to leave its key overnight interest rate at five per cent in October was driven by factors including conflict in the Middle East that risks keeping oil prices elevated and federal and provincial government spending that “could get in the way of returning inflation to target.”

The six-member Governing Council, led by central bank governor Tiff Macklem, began meeting Oct. 17 and discussed a number of concerns including the risk of inflation expectations becoming entrenched. According to a statement of deliberations released Nov. 8, they also concluded that continued wage increases at the current pace of four per cent to five per cent would be “inconsistent” with restoring price stability.

However, the central bankers also discussed signs that raising interest rates over the past year and a half was working to slow the economy and tamp down inflation.

Consumer spending has been weaker than expected, for example, with household credit growth declining “substantially” as Canadians adjust to higher borrowing costs.

Third-quarter assessments also suggested weakness in spending on housing and durable goods with a spread to services. Meanwhile, they anticipated that exports would stall as foreign demand softened, with businesses reporting softer investment intentions due to elevated funding costs and weaker sales prospects.

But while inflation has begun to moderate in certain areas including food, several factors were standing in the way of the disinflationary process, the central bankers concluded, according to the statement of deliberations. These included higher gas prices driven by elevated global oil prices, a main factor in the rebound of inflation since June.

Shelter price inflation, meanwhile, was running around six per cent, partly due to rising mortgage interest costs following interest rate increases but also evident in rent and other housing-related costs.

The central bankers said Canada’s ongoing “structural shortage” of housing was getting in the way of a typical scenario where higher interest rates normally exert downward pressure on house prices and other costs that are closely linked to house prices, such as maintenance, taxes and insurance. In addition, the rapid increase in Canada’s population had added to the existing imbalance between demand and supply for housing, the central bankers said.

They also concluded that near-term inflation expectations and wage growth remained elevated, and while corporate pricing behaviour was “normalizing,” it was doing so only gradually.

“Together, these factors were contributing to persistence in inflation,” the central bankers concluded, noting that core inflation has been stuck in a range of 3.5 per cent to four per cent for the past year.

As a result, Governing Council members revised their forecast for inflation upwards in the near term.

“The lack of downward momentum in underlying inflation was a source of considerable concern,” according to the statement of deliberations, which said the two possible explanations for this persistence were that the transmission of monetary policy actions through to inflation required more time, or that monetary policy was not yet restrictive enough to relieve price pressures.

“Members discussed whether the stickiness in core inflation measures reflected the fact that excess demand remained in the system or that inflation could be becoming entrenched.”

If that is the case, the central bankers acknowledged that further rates hikes would likely be required to restore price stability.

Despite these concerns, with a weaker growth outlook and more excess supply, the central bankers continued to expect inflation would return to the two per cent target in 2025.

During their deliberations, the Governing Council members also discussed aggregate spending plans of federal and provincial governments, which are projected to increase at an annual pace of roughly 2.5 per cent in 2024, which could make it more difficult to rein in inflation to the central bank’s two per cent target.

“If all those plans are realized, this would contribute materially to growth over the next year,” the statement of deliberations said. “By adding to demand at a faster pace than the growth of supply, government spending could get in the way of returning inflation to target.”

The Bank of Canada paused interest rate hikes on Oct. 25 for the second consecutive time, keeping the key overnight rate at five per cent.

Macklem acknowledged then that the runway for a soft landing was narrowing, with low growth forecasts for the coming quarters that could easily turn negative.

Since the latest rate decision was made, certain early economic indicators for the third quarter have suggested the Canadian economy has slowed. Statistics Canada released early estimates that suggested gross domestic product was flat or marginally down in July, August and September, with updated figures expected Nov. 30.

The central bankers spent a considerable amount of time discussing global financial conditions at the meetings before their latest rate decision, including a noteworthy rise in bond yields, according to the statement of deliberations.

Among the possible reasons for this rise, they concluded, were market assessments that central bank policy rates would remain higher for longer, and investors seeking greater compensation for volatility in long-term rates. They also considered whether continued deficit financing in the United States was leading to a large supply of U.S. Treasuries, together with fewer buyers and quantitative tightening, and the possibility that the neutral rate may be drifting higher.

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Business

Canada Goose to get into eyewear through deal with Marchon

Published

15 hours ago

September 19, 2024

Anne Joseph

TORONTO – Canada Goose Holdings Inc. says it has signed a deal that will result in the creation of its first eyewear collection.

The deal announced on Thursday by the Toronto-based luxury apparel company comes in the form of an exclusive, long-term global licensing agreement with Marchon Eyewear Inc.

The terms and value of the agreement were not disclosed, but Marchon produces eyewear for brands including Lacoste, Nike, Calvin Klein, Ferragamo, Longchamp and Zeiss.

Marchon plans to roll out both sunglasses and optical wear under the Canada Goose name next spring, starting in North America.

Canada Goose says the eyewear will be sold through optical retailers, department stores, Canada Goose shops and its website.

Canada Goose CEO Dani Reiss told The Canadian Press in August that he envisioned his company eventually expanding into eyewear and luggage.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GOOS)

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Business

A timeline of events in the bread price-fixing scandal

Published

17 hours ago

September 19, 2024

Anne Joseph

Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

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Business

TD CEO to retire next year, takes responsibility for money laundering failures

Published

19 hours ago

September 19, 2024

Anne Joseph

TORONTO – TD Bank Group, which is mired in a money laundering scandal in the U.S., says chief executive Bharat Masrani will retire next year.

Masrani, who will retire officially on April 10, 2025, says the bank’s, “anti-money laundering challenges,” took place on his watch and he takes full responsibility.

The bank named Raymond Chun, TD’s group head, Canadian personal banking, as his successor.

As part of a transition plan, Chun will become chief operating officer on Nov. 1 before taking over the top job when Masrani steps down at the bank’s annual meeting next year.

TD also announced that Riaz Ahmed, group head, wholesale banking and president and CEO of TD Securities, will retire at the end of January 2025.

TD has taken billions in charges related to ongoing U.S. investigations into the failure of its anti-money laundering program.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:TD)

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