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Why central banks hope you think prices are rising: Don Pittis – CBC.ca

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Do you feel as if the things you buy every day are getting more expensive?

If you live in North America or Europe, your local central bankers might be pleased to hear that. And it’s not because they want you to suffer.

Instead they hope that if you expect inflation when the latest numbers come out next Wednesday, that’s what’s going to happen.

This week, Canadians get a fresh perspective on where inflation is heading through a brand new set of data coming from the Bank of Canada later today. And while most of us dislike rising prices, odds are economists at the European Central Bank and the U.S. Federal Reserve will be very jealous of Canada’s numbers.

At the end of last week, the vice-chair of the Fed, economist Richard Clarida, warned that the U.S. central bank would have to keep struggling against what he called “global disinflationary pressures.”

What did you expect?

While the central bankers’ fear of falling prices seems to be abating, many, like Clarida, worry that a slowing rate of price growth — where prices rise, but well below the two per cent inflation target — will gradually take the world back to its nemesis, deflation.

At its last interest rate announcement, the Fed said it would keep interest rates on hold in 2020 after a series of cuts. But the Fed vice-chair then hinted last week that more cuts might be needed.

“The global disinflationary pressures which I referred to are very powerful forces and policy needs to factor that in in setting policy to get inflation up to the objective,” said Clarida.

Boxing Day shoppers in Ottawa, looking for deals. Rising inflation allows central banks to increase interest rates, creating the ability to cut in the case of a downturn. (Patrick Doyle/Canadian Press)

Most economists used to imagine inflation in a relatively simple, mechanical way: Based on the idea of the Phillips curve, strong employment leads to higher inflation, and cutting interest rates makes prices rise.

But now there are increasing doubts about those relationships.

Instead, much more weight is given to inflation expectations. In other words, if you and all your friends think prices won’t rise, they won’t.

It is a strange and circular argument, but research partly financed by the Bank of Canada has shown it has a basis in fact.

New data on consumer views

Unbeknownst to most Canadians, the central bank has been collecting data on our inflation expectations since 2014. It will publish some of that information later today in its first Canadian Survey of Consumer Expectations.

The data — based on consumer interviews with a rotating cast of 1,000 heads of households — probes not just what inflation will be at the next release, but consumer expectations for the months and years ahead.

“Since expected inflation influences current wage negotiations, price setting and financial contracting for investment, it is one of the main drivers of current inflation,” reads a 2015 report explaining how the survey works.

But as Bank of Canada governor Stephen Poloz explained last week, adjusting those expectations once they have become deeply rooted in consumer thought is not necessarily easy.

“You make a forecast of inflation one to two years from now and ask where that’s going to be relative to your target,” said Poloz, outlining how the bank tried to bend expectations, and thus the eventual rate of inflation.

People might not like rising prices, but central banks are convinced it is better than the opposite. (Graeme Roy/The Canadian Press)

But, as he explained, that depends where the current rate is relative to the target, and whether the economy is strong or if it is weak, needing stimulus. 

In Canada, inflation expectations likely currently sit slightly above the bank’s two per cent target rate (though we will find out today), and the central bank is in a relatively happy position.

Theoretically, if needed, the bank should be able to nudge those long-term expectations up or down by nudging interest rates lower or higher respectively.

That is not so easy in other places, such as parts of Europe, where even low and negative interest rates have failed to push prices up in any substantial way.

There are things that could trigger inflation expectations, such as a sudden economic boom in some part of the world, or, as we saw last week, the threat of war that would cause emergency spending and perhaps shortages of raw materials, if oilfields were cut off, for example.

But far more worrying for central bankers in countries where both inflation expectations and interest rates are low is what they will do if a new recession that many worry may still be around the corner were to make an appearance.

Whereas Canada would still have room to cut and stimulate the economy with lower interest rates, others would once again face the distorting effects of other forms of stimulation, from negative interest rates to bond buying, which have proved less successful in practise than many economic theorists had hoped. 


Follow Don on Twitter @don_pittis

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Port of Montreal employer submits ‘final’ offer to dockworkers, threatens lockout

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MONTREAL – The employers association at the Port of Montreal has issued the dockworkers’ union a “final, comprehensive offer,” threatening to lock out workers at 9 p.m. Sunday if a deal isn’t reached.

The Maritime Employers Association says its new offer includes a three per cent salary increase per year for four years and a 3.5 per cent increase for the two subsequent years. It says the offer would bring the total average compensation package of a longshore worker at the Port of Montreal to more than $200,000 per year at the end of the contract.

“The MEA agrees to this significant compensation increase in view of the availability required from its employees,” it wrote Thursday evening in a news release.

The association added that it is asking longshore workers to provide at least one hour’s notice when they will be absent from a shift — instead of one minute — to help reduce management issues “which have a major effect on daily operations.”

Syndicat des débardeurs du port de Montréal, which represents nearly 1,200 longshore workers, launched a partial unlimited strike on Oct. 31, which has paralyzed two terminals that represent 40 per cent of the port’s total container handling capacity.

A complete strike on overtime, affecting the whole port, began on Oct. 10.

The union has said it will accept the same increases that were granted to its counterparts in Halifax or Vancouver — 20 per cent over four years. It is also concerned with scheduling and work-life balance. Workers have been without a collective agreement since Dec. 31, 2023.

Only essential services and activities unrelated to longshoring will continue at the port after 9 p.m. Sunday in the event of a lockout, the employer said.

The ongoing dispute has had major impacts at Canada’s second-biggest port, which moves some $400 million in goods every day.

On Thursday, Montreal port authority CEO Julie Gascon reiterated her call for federal intervention to end the dispute, which has left all container handling capacity at international terminals at “a standstill.”

“I believe that the best agreements are negotiated at the table,” she said in a news release. “But let’s face it, there are no negotiations, and the government must act by offering both sides a path to true industrial peace.”

Federal Labour Minister Steven MacKinnon issued a statement Thursday, prior to the lockout notice, in which he criticized the slow pace of talks at the ports in Montreal and British Columbia, where more than 700 unionized port workers have been locked out since Nov. 4.

“Both sets of talks are progressing at an insufficient pace, indicating a concerning absence of urgency from the parties involved,” he wrote on the X social media platform.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.



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‘Disgraceful:’ N.S. Tory leader slams school’s request that military remove uniform

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HALIFAX – Nova Scotia Premier Tim Houston says it’s “disgraceful and demeaning” that a Halifax-area school would request that service members not wear military uniforms to its Remembrance Day ceremony.

Houston’s comments were part of a chorus of criticism levelled at the school — Sackville Heights Elementary — whose administration decided to back away from the plan after the outcry.

A November newsletter from the school in Middle Sackville, N.S., invited Armed Forces members to attend its ceremony but asked that all attendees arrive in civilian attire to “maintain a welcoming environment for all.”

Houston, who is currently running for re-election, accused the school’s leaders of “disgracing themselves while demeaning the people who protect our country” in a post on the social media platform X Thursday night.

“If the people behind this decision had a shred of the courage that our veterans have, this cowardly and insulting idea would have been rejected immediately,” Houston’s post read. There were also several calls for resignations within the school’s administration attached to Houston’s post.

In an email to families Thursday night, the school’s principal, Rachael Webster, apologized and welcomed military family members to attend “in the attire that makes them most comfortable.”

“I recognize this request has caused harm and I am deeply sorry,” Webster’s email read, adding later that the school has the “utmost respect for what the uniform represents.”

Webster said the initial request was out of concern for some students who come from countries experiencing conflict and who she said expressed discomfort with images of war, including military uniforms.

Her email said any students who have concerns about seeing Armed Forces members in uniform can be accommodated in a way that makes them feel safe, but she provided no further details in the message.

Webster did not immediately respond to a request for comment.

At a news conference Friday, Houston said he’s glad the initial request was reversed but said he is still concerned.

“I can’t actually fathom how a decision like that was made,” Houston told reporters Friday, adding that he grew up moving between military bases around the country while his father was in the Armed Forces.

“My story of growing up in a military family is not unique in our province. The tradition of service is something so many of us share,” he said.

“Saying ‘lest we forget’ is a solemn promise to the fallen. It’s our commitment to those that continue to serve and our commitment that we will pass on our respects to the next generation.”

Liberal Leader Zach Churchill also said he’s happy with the school’s decision to allow uniformed Armed Forces members to attend the ceremony, but he said he didn’t think it was fair to question the intentions of those behind the original decision.

“We need to have them (uniforms) on display at Remembrance Day,” he said. “Not only are we celebrating (veterans) … we’re also commemorating our dead who gave the greatest sacrifice for our country and for the freedoms we have.”

NDP Leader Claudia Chender said that while Remembrance Day is an important occasion to honour veterans and current service members’ sacrifices, she said she hopes Houston wasn’t taking advantage of the decision to “play politics with this solemn occasion for his own political gain.”

“I hope Tim Houston reached out to the principal of the school before making a public statement,” she said in a statement.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.



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Sides in B.C. port dispute to meet in bid to end lockout after talk with minister

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VANCOUVER – Employers and the union representing supervisors embroiled in a labour dispute that triggered a lockout at British Columbia’s ports will attempt to reach a deal when talks restart this weekend.

A spokesman from the office of federal Labour Minister Steven MacKinnon has confirmed the minister spoke with leaders at both the BC Maritime Employers Association and International Longshore and Warehouse Union Local 514, but did not invoke any section of the Canadian Labour Code that would force them back to talks.

A statement from the ministry says MacKinnon instead “asked them to return to the negotiation table,” and talks are now scheduled to start on Saturday with the help of federal mediators.

A meeting notice obtained by The Canadian Press shows talks beginning in Vancouver at 5 p.m. and extendable into Sunday and Monday, if necessary.

The lockout at B.C. ports by employers began on Monday after what their association describes as “strike activity” from the union. The result was a paralysis of container cargo traffic at terminals across Canada’s west coast.

In the meantime, the union says it has filed a complaint against the employers for allegedly bargaining in bad faith, a charge that employers call a “meritless claim.”

The two sides have been without a deal since March 2023, and the employers say its final offer presented last week in the last round of talks remains on the table.

The proposed agreement includes a 19.2 per cent wage increase over a four-year term along with an average lump sum payment of $21,000 per qualified worker.

The union has said one of its key concerns is the advent of port automation in cargo operations, and workers want assurances on staffing levels regardless of what technology is being used at the port.

The disruption is happening while two container terminals are shut down in Montreal in a separate labour dispute.

It leaves container cargo traffic disrupted at Canada’s two biggest ports, Vancouver and Montreal, both operating as major Canadian trade gateways on the Pacific and Atlantic oceans.

This is one of several work disruptions at the Port of Vancouver, where a 13-day strike stopped cargo last year, while labour strife in the rail and grain-handling sectors led to further disruptions earlier this year.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.



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