Even as warnings about a potential recession grow louder, the Bank of Canada is expected to announce another hefty interest rate hike on Wednesday, edging the bank closer to the end of one of the fastest monetary policy tightening cycles in its history.
RBC senior economist Nathan Janzen says it’s a coin toss between the Bank of Canada choosing to raise its key interest rate by half a percentage point or three-quarters of a percentage point, though RBC is leaning toward the smaller increase.
“It’s pretty clear that more aggressive interest rate hikes are still warranted,” Janzen said.
Wednesday’s announcement would make it the sixth consecutive time the Bank of Canada raises interest rates this year in response to decades-high inflation. It also comes amid growing fears that a recession is looming.
Last week, Finance Minister Chrystia Freeland shifted her tone on the economy from her usual praises of Canada’s strong pandemic economic recovery. She warned tough times are ahead for Canadians.
“Mortgage payments will rise. Business will no longer be booming,” Freeland said. “Our unemployment rate will no longer be at its record low.”
As well as the interest rate decision, the Bank of Canada will also release updated economic projections on Wednesday in its latest quarterly monetary policy report. The central bank’s outlook on inflation will be key to its plans for any additional rate hikes to come.
Since March, the Bank of Canada has raised its key interest rate from 0.25 to 3.25 per cent, feeding into higher borrowing costs for Canadians and businesses.
And although inflation has been slowing in recent months thanks to tumbling gas prices, the central bank has made it clear it doesn’t believe its job is done just yet.
“Simply put, there is more to be done,” Bank of Canada governor Tiff Macklem said during a speech in Halifax on Oct. 6.
As the Bank of Canada raises interest rates to bring inflation back to its two per cent target, officials at the central bank have expressed concern about how high inflation still is and its impact on consumer and business expectations for future inflation.
In September, the annual inflation rate slowed to 6.9 per cent, though the bank’s preferred core measures of inflation, which tend to be less volatile, were unchanged from August.
Grocery prices also continued to climb, with the cost of food up a staggering 11.4 per cent compared with a year ago.
There is some good news for the Bank of Canada on the inflation expectations front. Its recent business outlook survey showed businesses expect wages and prices to rise more slowly as their overall inflation expectations have eased.
The good news, however, won’t be enough to dissuade the bank from another sizable rate hike, Janzen said.
“There are some indicators that we’re past peak inflation rates. It’s just those inflation rates are still too high, currently, and still way too broad right now to prevent additional interest rate increases,” Janzen said.
Most commercial banks expect one more interest rate hike after October before the bank hits pause on one of its most aggressive rate-hiking cycles in history.
The effect of these rate hikes is expected to be felt more broadly in the economy next year as Canadians and businesses adjust their spending.
While there is some division among economists on how severe the impending economic slowdown will be, many economists estimate the chances of a recession have grown.
Recent surveys from the Bank of Canada reveal most Canadians and businesses also believe a recession is on the way.
However, many economists have highlighted that Canada’s tight labour market might serve as a buffer during an economic downturn. In September, the unemployment rate was 5.2 per cent, which is considered to be quite low.
Although the Bank of Canada has previously spoken about aiming for a “soft landing,” where inflation comes down without triggering a serious economic slowdown, Macklem said in recent weeks that the primary goal of the bank is to restore price stability.
That commitment has sparked worries in labour groups, which have come out against the aggressive rate-hiking path over concerns about the potential impact of a recession on employment.
A new report by the Centre for Future Work in collaboration with the Canadian Labour Congress is calling on the Bank of Canada to pause its rate hikes until it can assess the impact of previous interest rate increases on the economy.
“After three years of dealing with both the health and the economic consequences of an unprecedented pandemic, the last thing Canadians can tolerate is another recession,” the report by Jim Stanford reads.
Stanford, an economist and the director of the Centre for Future Work, makes the case in the report for a different approach to addressing high inflation.
Instead of continuing along the path of higher interest rates, Stanford recommends the Bank of Canada balance its goal of restoring low and stable inflation with promoting economic growth and maintaining employment.
In the report, Stanford also calls on the federal government to play a more active role in fighting inflation by exploring options such as tax increases on high-income earners and windfall taxes on profitable corporations.
An autonomous robot delivering a pizza from Pizza Hut is shown in Vancouver.
When customers in downtown Vancouver placed orders with Pizza Hut in September, many of the pies landed on their doorsteps without a courier in sight.
Instead, diners were met by Angie, Hugo or Raja — autonomous robots resembling a cooler on four wheels with eyelike lights. They travelled by sidewalk to customers, who used unique codes to open their lids and reveal their food.
The value proposition for Serve Robotics — a spinoff of Uber’s 2020 food delivery acquisition Postmates that created the trio and a fleet of zero-emission robots — is simple: with slim restaurant margins, a labour crunch and climate change worries ‘”why move a two-pound burrito in a two-ton car?”
A handful of other robotic delivery companies have the same ethos, but their paths to ubiquity are facing several roadblocks.
Delivery robots have been banned from some major cities like Toronto, which argued they are a hazard for people with low mobility or vision, as well as seniors and children. Cyclists already gripe about e-scooters in bike lanes and don’t want robots there either.
“They’re drawing a lot of attention from pedestrians while they’re out on the sidewalk because they’re not seeing them that often and people are excited to see them, but as usage continues to increase, this can cause a lot of congestion on already narrow sidewalks,” said Prabhjot Gill, a McKinsey & Co. associate partner focused on retail.
There’s also worries autonomous robots or ones manned by staff overseas will take jobs away from couriers.
Ali Kashani, Serve’s Vancouver-bred chief executive, considers the criticism to be a natural part of innovation that even the bicycle experienced, when it was invented and many thought it would cause divorce.
He’s tried to quiet concerns by ensuring his robots (Kashani won’t say how many there are) chime and flash their lights to alert people they are around. They are equipped with automatic crash prevention, vehicle collision avoidance and emergency braking.
Ultimately, he thinks they are “a win-win for everybody” because they reduce traffic, boost local commerce and help merchants get food to consumers in a less expensive way.
The environment benefits too because Serve replaces delivery vehicles. Kashani estimates roughly half the deliveries made in the country cover less than 2.5 miles and 90 per cent are completed by car. About two per cent of global greenhouse gas emissions worldwide are attributable to people using personal cars for local shopping and errands.
“There’s a lot of reasons to replace our cars with these robots as quickly as we really can, but there’s no reason for us to make anyone an enemy,” Kashani said.
Knowing how much opposition new ideas can face, Serve is careful to engage with governments and authorities before launching in a city, even if it has no legislation allowing or banning robots.
However, David Lepofsky, chair of the Accessibility for Ontarians with Disabilities Act Alliance, said there’s no way for such robots and humans to coexist because they will always present a tripping hazard and worse, they could be used to transport contraband or explosives.
He insists the fight he and others have waged to keep robots off sidewalks is not an attack on innovation.
“It’s not like we’re denying people a service,” he said. “We’ve got a way to deliver pizzas that we’ve had since we’ve had pizza delivery. It’s called human beings.”
Manish Dhankher, Pizza Hut Canada’s chief customer officer, agrees no pizza delivery is worth risking somebody’s safety, but said his company only partnered with Serve once the robots had made thousands of injury-free trips.
Serve robots only made nearby deliveries for Pizza Hut’s 1725 Robson St. location for two weeks, but the pilot generated “childlike excitement” from customers and had a 95 per cent satisfaction rate.
Dhankher stresses the goal was modernizing pizza deliveries, not cost reduction. Couriers made the same number of deliveries they did before the robots were in use.
But Pizza Hut isn’t ready to roll out robots permanently.
“We want to learn more,” he said. “What happens when you put this in the snowy areas of Saskatchewan and what happens when there is freezing rain?”
Another question: what happens when cities won’t welcome the robots?
Tiny Mile, a company behind a series of pink, heart-eyed robots named Geoffrey, knows the answer.
Years after Geoffrey started making Toronto deliveries for delivery services like Foodora, Lepofsky and others argued people may be impeded by stopped or stalled devices or unable to quickly detect their presence.
Toronto’s city council voted last December to prohibit the devices that run on anything but muscle power from sidewalks, bike paths and pedestrian ways until the province implements a pilot project for such devices.
Geoffrey was then spotted in Ottawa before the city confirmed such robots aren’t permitted there either and Tiny Mile decamped from Canada completely.
“We almost went bankrupt,” said Ignacio Tartavull, Tiny Mile’s chief executive.
“It was basically a miracle we survived.”
To keep Geoffrey alive, Tiny Mile headed to Florida and North Carolina.
“It was love at first sight,” Tartavull said. “We spoke with cities and they were basically competing for us to go there.”
He believes that adoration will spread as the cost of robot deliveries — now roughly $1 — sink to 10 cents in the next seven years.
“It’s likely going to take a few years before we have it in the big cities but in the long term, it’s kind of undoubtable because the technology is here, it works and we can deliver on time and at a much lower cost,” he said.
As for Serve, it’s focused on Los Angeles right now, but Kashani said its mission is to get five per cent of delivery vehicles off the road in the next five years.
“But I definitely hope that if you fast forward one or two decades, these robots would be doing more local transportation of goods… so that we can not rely on cars.”
Apple is increasing its efforts to shift production outside of China, according to the Wall Street Journal.
Production at factories like Foxconn has taken a massive hit amid riots over zero-Covid policies.
Shifting production will likely be difficult in the current global economic climate, sources told WSJ.
Apple is pushing to expedite a pivot away from manufacturing in China, as protests swell over the country’s strict zero-Covid policies and riots thwart production.
The technology giant is ramping up efforts to shift production to other Asian countries like India and Vietnam in order to distance itself from Foxconn, one of the company’s top suppliers and operator of the world’s largest iPhone factory in China, according to the Wall Street Journal.
In November, the area known as “iPhone City” erupted into violent protests among employees over withheld pay and strict zero-Covid policies that prompted a lockdown in Zhengzhou. As demonstrations grew, Foxconn, which employs upwards of 300,000 factory workers, offered workers $1,400 to quit their jobs, and later, $1,800 bonuses to stay to retain its hemorrhaging workforce.
The turmoil’s impact on Apple’s bottom line has led to a sense of urgency to diversify production away from China, which has long dominated manufacturing for the company. However, the economic slump and slowed hiring is proving challenging to outsource production and forge partnerships with new suppliers, the Journal reported.
“Finding all the pieces to build at the scale Apple needs is not easy,” Kate Whitehead, a former Apple operations manager and owner of a supply-chain consulting firm, told the WSJ.
According to the Journal, Apple plans to source up to 45% of iPhone production from factories in India, where it currently manufactures in just the single digits, and to ramp up manufacturing of products like computers, watches, and AirPods in Vietnam.
“This last month in China has been the straw that broke the camel’s back for Apple in China with the head-scratching zero-Covid policy untenable with major strategic changes ahead for Cupertino in this key region,” Ives Wedbush Securities analyst Daniel Ives wrote in a note to clients.
Canada’s labour market added 10,000 jobs in November, building slightly on its massive 108,000 gain from the month prior, Statistics Canada reported on Friday.
The gain was driven by an increase in full-time positions. Employment rose in sectors such as finance, real estate and manufacturing but fell in construction and wholesale trade.
The unemployment rate ticked lower to 5.1 per cent as labour force participation edged down.
Average hourly wage growth across all industries remained unchanged in November at 5.6 per cent, while wages for permanent employees tapered gains to 5.4 per cent on an annualized basis.
It’s the sixth month in a row that wages have risen by more than five per cent and a key measure the Bank of Canada is watching as it tries to head off a wage-price spiral.
“A host of wage metrics suggest that Canadian wage growth is either stabilizing or decelerating,” Royce Mendes, managing director at head of macro strategy at Desjardins, said in a note.
“As a result of the only modest gain in headline employment and the absence of any signs of accelerating wage growth, we continue to expect the Bank of Canada to hike rates just 25bps next week.”
However, other economists are still betting on a half-point hike from the central bank.
“Over the past 6 months, the Canadian labour market has largely stood still, with average gains of just over 4K a month. However, given still strong wage growth, the composition of job gains in November (mainly private sector and full-time), and the low unemployment rate, this report supports our view that the Bank of Canada will increase rates by 50 bps next week, before pausing in 2023,” Karyne Charbonneau, the executive director of economics at CIBC Capital Markets, said in a note.
The small gain in employment comes as economic growth in the third quarter was stronger than expected.
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