Inflation ticked up in December — economists weigh in on what this means to the Bank of Canada and interest rates
Inflation accelerated to 3.4 per cent in December and an unexpected rise in the Bank of Canada’s preferred measures could complicate its decision on when to make the first cut to interest rates, economists say.
December’s headline inflation was faster than November’s rate of 3.1 per cent, Statistics Canada said Jan. 16, but the increase was mainly attributed to base effects from a plunge in gas prices in 2022.
“The much more worrying development is that the CPI-trim and CPI-median core measures both rose by a larger 0.4 per cent month over month,” said Stephen Brown, deputy chief North America economist with Capital Economics.
There are other signs inflation could be “stickier” than Canada’s central bank would like.
For example, the share of components tracked in the consumer price index that increased by more than three per cent rose to 52 per cent in December from 49 per cent in November, said Charles St-Arnaud, chief economist with Alberta Central. Items that rose by more than five per cent also increased.
“We believe it remains too early for the Bank of Canada to officially declare victory on inflation,” St-Arnaud said.
Looking past the data, Sebastien Lavoie, chief economist at Laurentian Bank of Canada, believes that the ongoing attacks on container ships in the Red Sea are increasing “the risk of a second inflation wave,” citing a surge in global shipping and container rates.
“The main implication would be the maintenance of current Bank of Canada and Federal Reserve policy rates well into the second half of 2024, if not until 2025,” Lavoie said.
The central bank makes its next rate decision on Jan. 24. Here’s what economists say policymakers might take from the inflation data.
“As mentioned in our 2024 economic outlook, key thresholds to embark on a prudent monetary easing path include hitting 2.5 per cent to 2.7 per cent total CPI inflation and seeing compelling evidence that core inflation measures are on a steady downward path and lower than three per cent. In our view, the Red Sea crisis, and disappointing results from the 2023 Q4 Bank of Canada (business and consumer outlook) surveys should contribute to stifling market expectations of Bank of Canada and United States Federal Reserve policy rate cuts during the first half of the year.”
“With this in mind, inflationary fears are less and less on our radar for 2024.”
“The increase in headline inflation, the relatively unchanged core inflation and the rise in core inflation’s momentum will provide reasons for the BoC to remain cautious on inflation. As such, we believe it remains too early for the BoC to officially declare victory on inflation. Looking ahead, the BoC is unlikely to contemplate rate cuts until inflation has been brought sustainably below three per cent. This is unlikely to happen until the spring and could be delayed if inflation proves to be stickier than expected.”
“The Bank of Canada’s preferred core measures, CPI-trim and CPI-median failed to fall, with trim accelerating by two ticks to 3.7 per cent and median remaining at 3.6 per cent (from an upwardly revised prior month reading that was previously 3.4 per cent). Those measures also accelerated in three-month and six-month annualized change terms, measures that the Bank of Canada will need to see more progress in before considering rate cuts.”
“Although the rise in headline inflation in December was mainly due to gasoline price base effects, the much more worrying development is that the CPI-trim and CPI-median core measures both rose by a larger 0.4 per cent month over month. The pick-up in underlying inflation pressures raises the risk that the Bank of Canada will need to keep interest rates higher for longer than markets are now pricing in, with the economy suffering further as a result.
“As the bank pays more attention to those core measures (CPI-trim and median) than the CPI excluding food and energy, those larger increases mean the bank is likely to maintain a hawkish tone at its meeting next week and reduce the chance of it cutting interest rates any time soon.”
“While the higher headline was little surprise, and precisely mimicked the U.S. inflation experience in December, the slightly more unsettling news is the persistence of core in the mid-3s. That sticky theme was echoed in yesterday’s BOS (Business Outlook Survey), and suggests that the last mile (or kilometre) of the inflation fight may prove to be the most challenging — bringing underlying inflation sustainably back below three per cent. Given that wage trends are also stuck in the four per cent to five per cent range, and now even housing may be showing a pulse, suggests that the Bank of Canada will doggedly maintain a cautious stance at next week’s rate decision and MPR (Monetary Policy Report). We are comfortable with our call of a first rate cut at the June meeting, even as the market leans in earlier.”
“December’s consumer price index (CPI) report shows just how challenging it is to conquer the last mile in the path toward price stability.
“The Bank of Canada will hold the policy rate at five per cent next week. That said, the Bank should begin slashing interest rates as early as April. Given that the economy has slowed to a crawl and that inflation at this point is mostly driven by shelter, keeping the rates higher for longer will not help. Shelter inflation occurs due to two factors: high rent growth due to the housing shortage and rising mortgage interest payments. The Bank of Canada cannot fix the former: housing shortage is a structural problem that will take many years to address. The latter, high mortgage interest payments, is directly caused by monetary policy.
“If you are looking for data to signal a rate cut is imminent, this isn’t it. December’s inflation report underscores that the last mile of getting inflation all the way back to two per cent is the hardest. It took about a year for inflation to drop from its peak of eight per cent to around three per cent, but over the past six months further headway has been halting. This leaves the Bank of Canada cautious as it considers when it will be appropriate to cut interest rates.
“Despite December’s report, we expect inflation, and the economy, will have cooled sufficiently by the spring for the Bank of Canada (BoC) to make its first interest rate cut in April. That said, inflation is unlikely to be quite at two per cent. As governor (Tiff) Macklem pointed out in December, the BoC doesn’t need to see two per cent to begin normalizing monetary policy, but rather be confident it is getting there.”
“Today’s CPI report was more mixed than the headline reading would suggest.”
“We continue to expect the BoC to tread cautiously and watch the data carefully for further slowing (of) inflation to allow a pivot to interest rate cuts around mid-year.”
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.
___
Yuri Kageyama is on X:
The Canadian Press. All rights reserved.
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.
Companies in this story: (TSX:SHOP)
The Canadian Press. All rights reserved.
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.
Companies in this story: (TSX:REI.UN)
The Canadian Press. All rights reserved.
‘I get goosebumps’: Canadians across the country mark Remembrance Day
Surrey police transition deal still in works, less than three weeks before handover
From transmission to symptoms, what to know about avian flu after B.C. case
Bitcoin has topped $87,000 for a new record high. What to know about crypto’s post-election rally
Wisconsin Supreme Court grapples with whether state’s 175-year-old abortion ban is valid
Twin port shutdowns risk more damage to Canadian economy: business groups
Canadanewsmedia news November 12, 2024: Union serves strike notice to Canada Post
As Toronto enters its Taylor Swift era, experts say crowd safety depends on planning
