(Bloomberg) — The sinking global economy is suffering through a colossal disinflationary shock that could briefly push it into dangerous deflation territory for the first time in decades.
With many national economies all but shutting down in an effort to contain the coronavirus, prices on everything from oil and copper to hotel rooms and restaurant take-out are tumbling.
“A powerful disinflationary tide is now rising,” said Joseph Lupton, global economist at JPMorgan Chase & Co.
That’s worrying because it could lengthen what may be the deepest recession since the Great Depression. Ebbing pricing power makes it harder for companies that piled on debt in the good times to meet their obligations. This could prompt them to make additional cuts in payrolls and investment or even default on their debts and go bankrupt.
While weak or falling prices may seem like an unalloyed good for consumers, a widespread deflationary price decline can be deleterious for the whole economy. Households hold off buying in anticipation of ever lower prices, and companies postpone investments because they see limited profit opportunities.
Even after the coronavirus crisis eases, the scars from the shutdown — elevated unemployment, shattered consumer and company confidence, and staggered returns to work — may keep price pressures in check, prompting central banks to hold interest rates at rock-bottom levels for a protracted period.
“They’re at zero for at least the next two years,” Ethan Harris, head of global economic research for Bank of America Corp., said of the Federal Reserve.
Monetary Largess
Further down the road, though, there’s a chance that all the monetary largess — coupled with a massive outpouring of government debt to pay for measures to fight the virus — could spawn a build-up in price pressures.
“It’s possible that the response to this over the longer term could have an inflationary consequence,” former New York Federal Reserve Bank of New York President Bill Dudley told an April 2 webinar organized by Princeton University. “But in the near term, it’s very definitely on the disinflationary/deflationary side.”
Lupton and his fellow JPMorgan economists forecast that their global consumer-price index will temporarily fall below its year-ago level sometime around the middle of 2020, the first time that’s happened in many decades.
Much of that is due to plunging oil prices. Even with their rebound last week on reports of potential production cutbacks, they’re still down about 55% since Jan. 1.
But other prices are also slipping, including for services. They have long been resistant to the downward tug that prices for internationally traded goods have been subject to, but now service-sector businesses are being slammed by the shutdowns. Lupton sees worldwide core inflation — excluding food and energy costs — falling below 1% and says there’s a risk it could stay there.
Disinflationary Force
“The overwhelming disinflationary force is quite large,” Diane Swonk, chief economist at Grant Thornton in Chicago, told Bloomberg Radio on April 3.
While industrial countries — with the exception of Japan — avoided falling into deflation in the wake of the 2008-09 financial crisis, they’re entering this one with inflation already at depressed levels.
Perhaps the world’s biggest source of deflation right now is China, where producer prices registered a 0.4% decline in February compared with a year ago after rising 0.1% in January. That’s a drag on the price of goods being shipped overseas from the world’s biggest trading nation.
But China isn’t the only country in pain.
Chain restaurants across Japan have rolled out discount plans for takeout menus, including Yoshinoya Co., which serves bowls of beef on rice and is running a 15%-off campaign.
Read more: Deflation a Real Risk for Japan, Former BOJ Economy Chief Says
The British Retail Consortium reported on April 1 that shop prices fell 0.8% in March, the biggest decline since May 2018, following a 0.6% February drop.
And in the U.S., domestic air fares plunged by an average of 14% between March 4 and March 7, according to booking site Hopper.com. Average revenue per hotel room plummeted 80% during the March 22-28 week from year-ago levels, hospitality-data firm STR reported.
“In terms of our business, COVID-19 is like nothing we’ve ever seen before,” Marriott International Inc. Chief Executive Officer Arne Sorenson said in March 19 video. “For a company that’s 92 years old, that’s borne witness to the Great Depression, World War II and many other economic and global crises, that’s saying something.”
Investors seem to be looking for a long period of very low inflation, according to trading in inflation-protected securities, although some analysts caution the readings may be distorted by a dash for cash.
Even before the crisis, monetary-policy makers were worried inflation was too low for the good of their economies. Now they have even more reason for concern.
“Deflation cannot be ruled out, but I refuse to make an estimate,” European Central Bank Governing Council member Robert Holzman said. “If deflation is due to a slump in the real economy, it will be difficult to solve this through monetary-policy instruments alone.”
Some economists think it’s inflation, not deflation, that’s the problem.
“What will then happen as the lock down gets lifted and recovery ensues, following a period of massive fiscal and monetary expansion?” London School of Economics Emeritus Professor Charles Goodhart and Talking Heads Macroeconomics founder Manoj Pradhan wrote for VOX on March 27. “The answer, as in the aftermath of wars, will be a surge in inflation, quite likely more than 5% and even in the order of 10% in 2021.
Former chief White House economist Jason Furman said faster inflation should be welcomed, not worried about.
“I don’t think we should be afraid of getting inflation,” Furman, who is now a professor at Harvard University, told Bloomberg Radio on April 2. “If we get inflation that would be good. That would be a good sign that we have adequate demand.”
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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.
