Inflation appears to have peaked but it’s still running hot and a supersized interest rate hike from the Bank of Canada next week is widely expected.
Some economists think Wednesday’s hike could be the last for a while.
“We think that by the time October comes around, we might be in a good enough position for the bank to take a pause and look at how the economy is reacting,” said Karyne Charbonneau, CIBC’s executive director of economics.
The September rate call comes at a crucial time for Canada’s economy.
As gas prices fell, the year-over-year inflation rate sat at 7.6 per cent in July, down from 8.1 per cent in June. Second-quarter GDP grew compared with the first three months of the year, though that slowed toward the end of the period and a preliminary estimate suggests a contraction in July. Meanwhile, the unemployment rate is holding at a historic low.
Despite the drop in the inflation rate, Bank of Canada Governor Tiff Macklem said in an Aug. 16 op-ed that nearly 40-year high inflation was still a major concern.
“Inflation in Canada has come down a little, but it remains far too high,” Macklem wrote. “We know our job is not done yet — it won’t be done until inflation gets back to the two per cent target.”
Some of Canada’s major banks are forecasting the central bank will the key interest rate by three-quarters of a percentage point, bringing it to 3.25 per cent.
In a closely watched speech last week, U.S. Federal Reserve Chair Jerome Powell delivered a stark message on its own rate hike cycle, saying the Fed will likely impose more large interest rate hikes in coming months. His message that the U.S. central bank will stay aggressive on interest rates had some observers speculating that the Bank of Canada hike on Sept. 7 could even be a full percentage point.
1:08 U.S. Federal Reserve chair says interest rate hikes could continue ‘for some time’
U.S. Federal Reserve chair says interest rate hikes could continue ‘for some time’ – Aug 26, 2022
The bank hiked its key rate in July by a full percentage point — the largest single rate increase since August 1998 after a series of hikes that began in March. Previously, the rate had been at 0.25 per cent where it sat since it was slashed to near-zero early in the pandemic.
Higher interest rates feed into higher lending rates across the economy, making it more expensive for Canadians and businesses to borrow money. The central bank is hoping that by making the cost of debt more expensive, spending in the economy will slow and inflation will cool.
However, senior economist David Macdonald at the Canadian Centre for Policy Alternatives warns the rapid pace of the hikes could have serious repercussions because of the high level of business and household debt in the economy.
In his latest analysis, Macdonald said private sector debt amounts to 225 per cent of the country’s gross domestic product. By comparison, the last time the bank raised interest rates this rapidly was in 1995, when private sector debt stood at 142 per cent of GDP.
That higher level of debt, he says, will make it harder to achieve the bank’s desired “soft landing,” where interest rate hikes bring inflation down without triggering a recession.
“What I really wanted to bring out in this analysis was the fact that private sector debt is much higher today than it was in the 1980s and 1990s and previous times that we’ve seen this kind of rapid rate increase,” said Macdonald. “And why this matters, of course, is that it’s not just the interest rate that matters, the interest rate is charged on something. It’s charged on private sector debt.”
Macdonald has been calling for alternative solutions to cool inflation using federal government rather than central bank policy.
Some of his recommendations include changing mortgage underwriting rules for investors to cool housing prices and expanding the new excess corporate profits tax beyond financial institutions.
However, Christopher Ragan, McGill University’s Max Bell School of Public Policy, said the central bank is best-suited to take on the responsibility of maintaining low interest rates.
“There’s very, very good reasons why we have operationally independent central bank trying to target inflation rather than governments, because governments in the past have done a very poor job at that,” he said.
Ragan said the independence of the Bank of Canada allows it to act forcefully in the face of inflation, while any government intervention would be highly political. Nevertheless, Ragan says bringing inflation down with interest rate hikes is painful.
“That’s actually why it’s so important to never let inflation get high in the first place,” said Ragan. “Because it’s not just that high inflation is bad, it’s that reducing high inflation back down to low inflation hurts a lot.”
4:24 Despite rising interest rates some home buyers are being lured back into the market by falling house prices
Despite rising interest rates some home buyers are being lured back into the market by falling house prices – Aug 19, 2022
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.
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.
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.
