Economy

As Bank of Canada tackles inflation, investors bet on shorter economic cycle

Published

3 years ago

November 8, 2021

The Bank of Canada risks cutting short the current economic expansion if it shifts its focus from reducing slack in the economy to tamping down inflation, potentially setting the stage for the next cycle of rate cuts.

The dilemma for the central bank comes from a situation where inflation is driven not so much by economic strength but by factors, such as supply shortages, that are outside of its control and could lead to more enduring price increases if inflation expectations were to rise.

At a policy announcement last month, the BoC became the first central bank from a G7 country to exit quantitative easing and signaled it could begin hiking interest rates in April, three months earlier than previously thought.

“Investors are saying that the BoC will need to hike several times to deal with inflation,” said James Athey, investment director at Aberdeen Standard Investments in London. “Inflation is supply-side (driven), cost-push and transitory, thus hikes will come at a time of falling growth.”

Economic cycles can last from as short as a couple of years to more than a decade. The last expansion began after the global financial crisis in 2009, ending with the start of the COVID-19 pandemic last year.

The BoC had planned to let activity in the current cycle run hotter than usual in an effort to boost employment more than in past recoveries but its focus has now pivoted to moving inflation closer to its 2% target, analysts say.

Inflation was at 4.4% in September, the highest in nearly two decades.

Money markets expect a hike as soon as March and five in total next year, much more than is expected from the Federal Reserve. Tightening cycles tend to slow economic activity.

One clue that the market expects economic growth to slow is the shape of the yield curve. The gap between Canada‘s 2-year and 10-year yields has slumped from 130 basis points in favor of the longer-dated bond in March to as low as 54 basis points after the recent policy decision.

Typically, investors demand a higher yield for longer-term bonds unless they expect rates to fall. A negative spread, so-called curve inversion, would be seen as a recession warning.

“The repricing of the front-end has left the curve entering the coming hiking cycle flatter than it ever has been this far ahead of actual rate hikes,” said Ian Pollick, global head FICC strategy at CIBC Capital Markets.

“That raises the risk the curve will prematurely invert.”

The recovery could be boosted by Canadians spending some of their record cash hoardings built up during the pandemic.

But inflation is weighing on consumer confidence and the economy could be more sensitive to hikes than just a few years ago, after households ramped up borrowing to participate in a red-hot housing market.

“The market is a little pessimistic right now,” said Robert Robis, chief global fixed income strategist at BCA Research. It is betting that “any rate hike cycle will be short-lived and potentially reversed fairly quickly.

(Reporting by Fergal Smith; Editing by Bernadette Baum)

Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

1 day ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

5 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

6 days ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

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