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.
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Bank of Canada can’t solve housing crisis, Tiff Macklem says
Governor says housing affordability can’t be fixed by raising or lowering interest rates
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
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.
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Netflix’s subscriber growth slows as gains from password-sharing crackdown subside
Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.
The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.
Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.
The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.
The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.
The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.
The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.
Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.
In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.
“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.
As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.
Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.
The Canadian Press. All rights reserved.
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