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Bank of Canada might need to raise rates if companies keep raising prices, Macklem warns – CBC.ca

Published

2 years ago

February 22, 2023

It may sound like a circular argument, but the only way to stop inflation is to stop companies from raising prices. And the only way to stop that is to get inflation under control. And that could mean an end to the interest rate hike pause.

After Tuesday’s latest release of inflation data, warnings from Bank of Canada governor Tiff Macklem in his testimony to parliament last week offer a stark reminder of how difficult, but how essential, it is to convince the sellers of goods and services to stop raising prices.

While overall inflation has eased to 5.9 per cent, that’s still high. Groceries are up another 11.4 per cent.

That’s difficult for consumers, whether businesses buying from other businesses or ordinary Canadian shoppers. Macklem said they simply cannot distinguish reasonable and necessary price rises to cover rising costs from price hikes merely to pad the bottom line.

He warns sellers: if price hikes continue at the pace we’ve seen recently, he may be forced to take action.

Hidden in plain sight

The latest slowdown in rising prices, finally falling below six per cent for the first time since February a year ago, is being read by many as a favourable sign.

Though it’s useful to view that number in context: that’s 5.9 per cent higher than a year ago when prices were already rising quickly, or what economists call the “base-year effect.”

A fall in global oil prices, which last week Macklem described as the “biggest contributor” to falling inflation, obscure the rising cost of other consumer necessities, like food.

As people as diverse as Federal Reserve chair Jerome Powell and Canadian labour economist Jim Stanford have noted, despite continued talk of a wage-price spiral, wages have not led the post-COVID bout of inflation. Wage hikes have steadily been below inflation. Latest Canadian jobs figures show wage hikes are declining, currently running at 4.5 per cent, more than a full percentage point below rising prices.

“It looks more like profit-price inflation to me where companies very opportunistically have taken advantage of a disruptive moment to soak consumers for more than they need to,” was Stanford’s analysis in an interview with the CBC last year.

And in last Thursday’s testimony to the Parliamentary Finance Committee, Macklem seemed to agree.

Can Bank of Canada governor Tiff Macklem break the back of inflation without more interest rate hikes? — The failure of businesses to ‘normalize’ pricing, testified Bank of Canada governor Tiff Macklem, is one of the things that could force the central bank to end its pause and keep raising interest rates. (Blair Gable/Reuters)

Macklem explained that a period of generally rising prices is a special opportunity for sellers. In the confusion of widespread price increases, consumers simply cannot distinguish between reasonable price increases due to a discreet cause — a frost in Florida that raises orange prices, for example — and price hikes meant to squeeze the customer and increase profits.

“When an economy is overheated, when inflation is high, when people see prices of everything going up, it makes it easier for companies to raise their prices because people can’t tell, is this … a generalized increase or is this just this company raising their prices?” testified Macklem last week.

In economics, the general principle is that sellers want to raise their prices as much as possible to maximize their profits. One of the reasons businesses have trouble doing that in normal, non-inflationary times is that consumers keep an eagle eye on price hikes and shun sellers they think are being greedy. But during periods of high inflation, unjustified individual price hikes are harder to distinguish and therefore retailers are harder to punish.

WATCH | What’s causing inflation to slow:

Chicken prices soar as inflation cools

15 hours ago

Duration 1:46

Inflation in Canada is down to 5.9 per cent, but food prices are still high with chicken becoming a big-ticket item on the grocery bill.

“When the economy is better balanced between supply and demand, the competitive function works much better and it’s a lot more difficult for companies to raise prices because they’ll lose market share,” said Macklem.

“They’ll lose their customers.”

Bigger, more frequent price hikes

This round of inflation had real causes: when supply chains suddenly gummed up and oil prices soared, many sellers were forced to raise their prices. Higher fuel costs and a shortage of cargo vessels meant goods cost more to ship. High worldwide demand for goods in short supply pushed input prices higher.

Essentially everyone who could was just doing their best to pass on their higher costs causing an unfamiliar flurry of pricing activity that had not been seen in decades, Bank of Canada research showed.

“The distribution of price-setting behaviour of companies changed,” Macklem told the parliamentary committee members. “Pricing increases were bigger, they were more frequent.”

But as supply chains opened up those price hikes should have begun to cool down.

The debate over whether grocery retailers in particular have raised prices too much continues to rage and may be revisited later this week when food retailer Loblaws unveils its corporate results on Thursday. The company, like other grocery chains, insists its price rises reflect increased costs.

Critics have pointed to soaring profits.

The correlation between Loblaw’s share price and the take-off of inflation in Canada is uncanny. While grocery CEOs complain they are just victims of inflation like the rest of us, merely “passing on” higher costs, their investors know otherwise. /2 <a href=”https://t.co/U1GParvi0u”>pic.twitter.com/U1GParvi0u</a>

—@JimboStanford

It may be that shareholders will rejoice if they see profits continue to rise at the expense of consumer prices but if the pace and size of price hikes don’t go back the way they used to be, to “normalize” in Bank of Canada language, Macklem says he has a surprise up his sleeve.

There are many sceptics who say inflation has no intention of going peacefully and that it will be “sticky.” The last time rising prices got seriously out of hand, “The Great Inflation,” only ended in the 1980s after a brutal interest-rate shock that saw mortgage rates approach 20 per cent. That ended inflation with a bang and a devastating recession.

So far central bankers seem confident that won’t happen this time. But if businesses don’t get pricing under control soon, Macklem said he will have to do something about it.

“That process of normalization is one of the key things we’re watching to evaluate whether we raised interest rates enough to get inflation back down to target,” testified Macklem.

“And if we don’t see it continue to normalize, we will need to do more.”

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Langford, Heim lead Rangers to wild 13-8 win over Blue Jays

Published

3 hours ago

September 17, 2024

Anne Joseph

ARLINGTON, Texas (AP) — Rookie Wyatt Langford homered, doubled twice and became the first Texas player this season to reach base five times, struggling Jonah Heim delivered a two-run single to break a sixth-inning tie and the Rangers beat the Toronto Blue Jays 13-8 on Tuesday night.

Leody Taveras also had a homer among his three hits for the Rangers.

Langford, who also walked twice, has 12 homers and 25 doubles this season. He is hitting .345 in September.

“I think it’s really important to finish on a strong note,” Langford said. “I’m just going to keep trying to do that.”

Heim was 1-for-34 in September before he lined a single to right field off Tommy Nance (0-2) to score Adolis García and Nathaniel Lowe, giving Texas a 9-7 lead. Heim went to the plate hitting .212 with 53 RBIs after being voted an All-Star starter last season with a career-best 95 RBIs. He added a double in the eighth ahead of Taveras’ homer during a three-run inning.

Texas had 13 hits and left 13 men on. It was the Rangers’ highest-scoring game since a 15-8 win at Oakland on May 7.

Matt Festa (5-1) pitched 1 1/3 scoreless innings to earn the win, giving him a 5-0 record in 13 appearances with the Rangers after being granted free agency by the New York Mets on July 7.

Nathan Eovaldi, a star of Texas’ 2023 run to the franchise’s first World Series championship, had his worst start of the year in what could have been his final home start with the Rangers. Eovaldi, who will be a free agent next season, allowed 11 hits (the most of his two seasons with Texas) and seven runs (tied for the most).

“I felt like early in the game they just had a few hits that found the holes, a few first-pitch base hits,” said Eovaldi, who is vested for a $20 million player option with Texas for 2025. “I think at the end of the day I just need to do a better job of executing my pitches.”

Eovaldi took a 7-3 lead into the fifth inning after the Rangers scored five unearned runs in the fourth. The Jays then scored four runs to knock out Eovaldi after 4 2/3 innings.

Six of the seven runs scored against Toronto starter Chris Bassitt in 3 2/3 innings were unearned. Bassitt had a throwing error during Texas’ two-run third inning.

“We didn’t help ourselves defensively, taking care of the ball to secure some outs,” Blue Jays manager John Schneider said.

The Blue Jays’ Vladimir Guerrero Jr. had a double and two singles, his most hits in a game since having four on Sept. 3. Guerrero is hitting .384 since the All-Star break.

TRAINER’S ROOM

Blue Jays: SS Bo Bichette (calf) was activated and played for the first time since July 19, going 2 for 5 with an RBI. … OF Daulton Varsho (shoulder) was placed on the 10-day injured list and will have rotator cuff surgery … INF Will Wagner (knee inflammation) was placed on the 60-day list.

UP NEXT

Rangers: LHP Chad Bradford (5-3, 3.97 ERA) will pitch Wednesday night’s game on extended five days’ rest after allowing career highs in hits (nine), runs (eight) and home runs (three) in 3 2/3 innings losing at Arizona on Sept. 14.

Blue Jays: RHP Bowden Francis (8-4, 3.50) has had two no-hitters get away in the ninth inning this season, including in his previous start against the New York Mets on Sept. 11. Francis is the first major-leaguer to have that happen since Rangers Hall of Famer Nolan Ryan in 1989.

—

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Billie Jean King set to earn another honor with the Congressional Gold Medal

Published

4 hours ago

September 17, 2024

Anne Joseph

WASHINGTON (AP) — Billie Jean King will become the first individual female athlete to be awarded the Congressional Gold Medal.

Reps. Brian Fitzpatrick of Pennsylvania and Mikie Sherrill of New Jersey announced Tuesday that their bipartisan legislation had passed the House of Representatives and would be sent to President Joe Biden for his signature.

The bill to honor King, the tennis Hall of Famer and activist, had already passed unanimously in the Senate.

Sherrill, a Democrat, said in a statement that King’s “lifetime of advocacy and hard work changed the landscape for women and girls on the court, in the classroom, and the workplace.”

The bill was introduced last September on the 50th anniversary of King’s victory over Bobby Riggs in the “Battle of the Sexes,” still the most-watched tennis match of all-time. The medal, awarded by Congress for distinguished achievements and contributions to society, has previously been given to athletes including baseball players Jackie Robinson and Roberto Clemente, and golfers Jack Nicklaus, Byron Nelson and Arnold Palmer.

King had already been awarded the Presidential Medal of Freedom in 2009. Fitzpatrick, a Republican, says she has “broken barriers, led uncharted paths, and inspired countless people to stand proudly with courage and conviction in the fight for what is right.”

___

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Account tweaks for young Instagram users ‘minimum’ expected by B.C., David Eby says

Published

4 hours ago

September 17, 2024

Anne Joseph

SURREY, B.C. – Premier David Eby says new account control measures for young Instagram users introduced Tuesday by social media giant Meta are the “minimum” expected of tech companies to keep kids safe online.

The parent company of Instagram says users in Canada and elsewhere under 18 will have their accounts set to private by default starting Tuesday, restricting who can send messages, among other parental controls and settings.

Speaking at an unrelated event Tuesday, Eby says the province began talks with social media companies after threatening legislation that would put big tech companies on the hook for “significant potential damages” if they were found negligent in failing to keep kids safe from online predators.

Eby says the case of Carson Cleland, a 12-year-old from Prince George, B.C., who took his own life last year after being targeted by a predator on Snapchat, was “horrific and totally preventable.”

He says social media apps are “nothing special,” and should be held to the same child safety standards as anyone who operates a place that invites young people, whether it’s an amusement park, a playground or an online platform.

In a progress report released Tuesday about the province’s engagement with big tech companies including Google, Meta, TikTok, Spapchat and X, formerly known as Twitter, the provincial government says the companies are implementing changes, including a “trusted flagger” option to quickly remove intimate images.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 17, 2024

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