Bank of Canada Governor Tiff Macklem in Ottawa on Dec. 16, 2022.Blair Gable/Blair Gable Photography
The Bank of Canada is widely expected to deliver a final quarter-point interest rate increase on Wednesday before pausing its historic monetary policy tightening cycle.
Central bank officials signalled in December that they were nearing the end of their inflation-fighting campaign, in which they increased borrowing costs seven consecutive times last year. They said the choice between pressing on with further rate hikes or hitting pause would depend on coming data.
Since then, most economic indicators have come in stronger than expected. Unemployment remains near a record low and consumer spending is holding up relatively well in the face of higher prices and rising borrowing costs. Inflation continues to trend downward, hitting an annual rate of 6.3 per cent in December from a peak of 8.1 per cent in June. But it remains well above the central bank’s 2-per-cent target.
The momentum of the Canadian economy through the fourth quarter of 2022 raises the odds of another rate hike this week – although for the first time in nearly a year, another is not guaranteed. Most Bay Street analysts expect a quarter-point move and financial markets are pricing in a roughly 70-per-cent chance of this happening. That would take the bank’s benchmark lending rate to 4.5 per cent.
“We’re looking for a 25-basis-point hike next Wednesday, but there’s two-way risks around that,” said Josh Nye, senior economist at Royal Bank of Canada. “We could see them pause, or could even see another 50-basis-point hike. They’ve kind of left a lot of options on the table.” (A basis point is one hundredth of a percentage point.)
Most analysts expect this to be the last push in the current tightening cycle. The Bank of Canada has not yet brought inflation to heel. But interest rate changes work with a considerable lag, often taking six to eight quarters to have a full impact on inflation. In effect, much of the pain from the 2022 rate increases has yet to be felt beyond the housing market.
This could change in the coming months. Consumer spending is expected to contract as more homeowners renew their mortgages at higher rates and nervous shoppers cut back on non-essential purchases. A pair of Bank of Canada surveys published last week found that the majority of businesses and consumers expect a recession in the next year. The central bank itself is forecasting that the economy will stall through the first half of 2023, posting near zero growth.
The bank is intentionally slowing down the economy, raising borrowing costs to curb spending on goods and services and slow the pace of price increases. But it’s trying not to overdo it – a difficult task given the lag time between rate hikes and their intended effect.
“We are trying to balance the risks of over- and undertightening monetary policy,” Bank of Canada Governor Tiff Macklem said in a December speech.
“If we raise rates too much, we could drive the economy into an unnecessarily painful recession and undershoot the inflation target. If we don’t raise them enough, inflation will remain elevated, and households and business will come to expect persistently high inflation.”
He added that not doing enough posed the “greater risk.”
Other central banks face similar balancing acts as they slow the pace of monetary policy tightening and approach a pivot point. The U.S. Federal Reserve is expected to announce a 25-basis-point rate increase on Feb. 1, bringing the Federal Funds Rate up to a range of 4.5 per cent to 4.75 per cent.
Most Fed officials indicated in December that they expect the policy rate will exceed 5 per cent by the end of 2023. However, traders and investors have begun to doubt the U.S. central bank will get that far. Financial markets are pricing a terminal policy rate of 4.75 per cent to 5 per cent.
Whatever the path forward, don’t expect officials at either the Bank of Canada or the Federal Reserve to suddenly sound dovish, said James Orlando, senior economist at Toronto-Dominion Bank. Bond yields have already fallen in recent months, and central bankers may be wary of financial conditions loosening more than they intend if they stop talking tough on inflation.
“They can’t just say, ‘We’re done, set it and forget it.’ They’re going to have to make sure that everything is moving in the direction that they thought,” Mr. Orlando said. “If we keep seeing blowout employment numbers, which is going to lead to greater consumer spending potentially, then maybe they have to hike again.”
The strength of the labour market presents a particular challenge for the central bank. Canada added 104,000 jobs in December, and the unemployment rate dropped to 5 per cent, only slightly above a record low of 4.9 per cent reached last summer.
The tight job market is fuelling wage growth. That’s good news for Canadian workers, but it makes the central bank’s inflation-control job harder, as rising wages feed through to inflation, especially in the service sector. Mr. Macklem argued in a November speech that unemployment would need to rise and job vacancies fall to get inflation back to target.
The latest Consumer Price Index data, published by Statistics Canada last week, suggests inflation is moving in the right direction. The annual rate of CPI growth fell to 6.3 per cent in December, from 6.8 per cent in November, led by a sharp drop in gasoline prices. Core inflation measures, which capture underlying price pressures in the economy, remain stubbornly high, but they have begun to decelerate.
Economists expect inflation to keep moving down. The jump in energy and other commodity prices that occurred in the spring of 2022 will fall out of the annual data in the coming months. Prices for durable goods are already flatlining or even falling, as supply chains improve and demand dips for non-essential products.
The central bank said in October that it expects CPI inflation to be around 3 per cent by the end of 2023, and back at the 2-per-cent target by the end of 2024. The bank will publish new inflation and economic growth forecasts on Wednesday.
TORONTO – Canada Goose Holdings Inc. says it has signed a deal that will result in the creation of its first eyewear collection.
The deal announced on Thursday by the Toronto-based luxury apparel company comes in the form of an exclusive, long-term global licensing agreement with Marchon Eyewear Inc.
The terms and value of the agreement were not disclosed, but Marchon produces eyewear for brands including Lacoste, Nike, Calvin Klein, Ferragamo, Longchamp and Zeiss.
Marchon plans to roll out both sunglasses and optical wear under the Canada Goose name next spring, starting in North America.
Canada Goose says the eyewear will be sold through optical retailers, department stores, Canada Goose shops and its website.
Canada Goose CEO Dani Reiss told The Canadian Press in August that he envisioned his company eventually expanding into eyewear and luggage.
This report by The Canadian Press was first published Sept. 19, 2024.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – TD Bank Group, which is mired in a money laundering scandal in the U.S., says chief executive Bharat Masrani will retire next year.
Masrani, who will retire officially on April 10, 2025, says the bank’s, “anti-money laundering challenges,” took place on his watch and he takes full responsibility.
The bank named Raymond Chun, TD’s group head, Canadian personal banking, as his successor.
As part of a transition plan, Chun will become chief operating officer on Nov. 1 before taking over the top job when Masrani steps down at the bank’s annual meeting next year.
TD also announced that Riaz Ahmed, group head, wholesale banking and president and CEO of TD Securities, will retire at the end of January 2025.
TD has taken billions in charges related to ongoing U.S. investigations into the failure of its anti-money laundering program.
This report by The Canadian Press was first published Sept. 19, 2024.
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