Business

Bank of Canada can’t solve housing crisis, Tiff Macklem says

Published

9 months ago

February 7, 2024

Harry Miller

Governor says housing affordability can’t be fixed by raising or lowering interest rates

Bank of Canada governor Tiff Macklem. Photo by Nathan Denette/The Canadian Press files

Rising shelter costs are now the biggest contributor to above-target inflation, but Bank of Canada governor Tiff Macklem said the central bank is powerless to address them. That was just one of the limits of monetary policy that Macklem outlined in a Feb. 6 speech before the Montreal Council on Foreign Relations about what the bank can and can’t do — a topic that has taken on urgency as the public and policy makers clamour for solutions to issues such as housing affordability. Here are three key takeaways from Macklem’s speech.

Interest rates can’t solve the housing crisis

Housing affordability cannot be fixed by raising or lowering interest rates, the Bank of Canada governor said. Shelter price inflation has been elevated for several years and increased further in the past six months. But none of the underlying reasons behind the country’s housing supply crunch can be addressed by monetary policy, Macklem said.

He said that while shelter price inflation partly reflects the impact of increases in the central bank’s policy rate on mortgage interest costs, it also reflects increases in rents and other housing costs, which are more related to the structural shortage of housing.

“That is not something monetary policy can fix. But it is something we need to understand and factor into monetary policy because it is affecting the cost of living for Canadians,” he said.

While monetary policy has big effects on the housing sector and changes in the policy rate affect demand for housing very quickly due to their influence on mortgages, Macklem said the effects of monetary policy on supply are much more limited.

The pandemic proved monetary policy can control inflation

Canada experienced the deepest recession on record and inflation fell sharply at the start of the pandemic, Macklem said. The economy then had the fastest recovery ever when it reopened.

He said that amid the huge swings in the economy, monetary policy has shown it has the power to control inflation over the medium term.

“The last few years have caused some people to question monetary policy. That’s not surprising,” he said.

Combined actions by governments in rolling out fiscal stimulus and the Bank of Canada in cutting the policy rate to near zero helped keep the economy going and avoided deflation, Macklem said.

He added that they probably could have begun withdrawing stimulus sooner, but that even if they had, the impact on post-pandemic inflation would have been minimal.

Hitting the two per cent inflation every month

Because interest rates affect everyone in every nook and cranny of the economy, Macklem said they inevitably influence demand and inflation.Adjusting only one interest rate in the entire system sets in motion an effective chain reaction that ultimately controls inflation — but it doesn’t work immediately.

Rather, he said, monetary policy works with a lag of more than a year. This means that by the time a policy change affects inflation, the relative price shock that caused concern has typically run its course.

Those relative price shocks are fluctuations in specific prices, often for energy and food, because of things like geopolitical events, droughts and transportation disruptions. As long as these don’t broaden into more generalized price changes, they have a temporary or transitory effect on inflation, he said.

Macklem noted that central banks can’t prevent short-run fluctuations in inflation caused by these relative price shocks.

“We typically look through them, since reacting would add even more volatility,” he said.Recognizing that there will be temporary fluctuations, he said the bank aims for the centre of its one per cent to three per cent band, so inflation is in the band most of the time.

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Business

Japan’s SoftBank returns to profit after gains at Vision Fund and other investments

Published

6 hours ago

November 12, 2024

Anne Joseph

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.

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Yuri Kageyama is on X:

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Business

Trump campaign promises unlikely to harm entrepreneurship: Shopify CFO

Published

7 hours ago

November 12, 2024

Anne Joseph

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)

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Business

RioCan cuts nearly 10 per cent staff in efficiency push as condo market slows

Published

7 hours ago

November 12, 2024

Anne Joseph

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)

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