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.
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>
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.”
TORONTO – Unifor says workers at a Walmart warehouse in Mississauga, Ont., have voted to join the union.
The union says it’s Walmart’s first warehouse to unionize in Canada.
Unifor national president Lana Payne says the employees stood up for their rights and the union is excited to get to work on their first collective agreement.
Unifor’s campaign at Walmart’s facility began in December 2023.
The vote was held from Sept. 10 to 12.
Unifor represents 315,000 workers across the country.
This report by The Canadian Press was first published Sept. 13, 2024.
The Canadian government says it will donate up to 200,000 vaccine doses to fight the mpox outbreak in Congo and other African countries.
It says the donated doses of Imvamune will come from Canada’s existing supply and will not affect the country’s preparedness for mpox cases in this country.
Minister of Health Mark Holland says the donation “will help to protect those in the most affected regions of Africa and will help prevent further spread of the virus.”
Dr. Madhukar Pai, Canada research chair in epidemiology and global health, says although the donation is welcome, it is a very small portion of the estimated 10 million vaccine doses needed to control the outbreak.
Vaccine donations from wealthier countries have only recently started arriving in Africa, almost a month after the World Health Organization declared the mpox outbreak a public health emergency of international concern.
A few days after the declaration in August, Global Affairs Canada announced a contribution of $1 million for mpox surveillance, diagnostic tools, research and community awareness in Africa.
On Thursday, the Africa Centres for Disease Control and Prevention said mpox is still on the rise and that testing rates are “insufficient” across the continent.
Jason Kindrachuk, Canada research chair in emerging viruses at the University of Manitoba, said donating vaccines, in addition to supporting surveillance and diagnostic tests, is “massively important.”
But Kindrachuk, who has worked on the ground in Congo during the epidemic, also said that the international response to the mpox outbreak is “better late than never (but) better never late.”
“It would have been fantastic for us globally to not be in this position by having provided doses a much, much longer time prior than when we are,” he said, noting that the outbreak of clade I mpox in Congo started in early 2023.
Clade II mpox, endemic in regions of West Africa, came to the world’s attention even earlier — in 2022 — as that strain of virus spread to other countries, including Canada.
Two doses are recommended for mpox vaccination, so the donation may only benefit 100,000 people, Pai said.
Pai questioned whether Canada is contributing enough, as the federal government hasn’t said what percentage of its mpox vaccine stockpile it is donating.
“Small donations are simply not going to help end this crisis. We need to show greater solidarity and support,” he said in an email.
“That is the biggest lesson from the COVID-19 pandemic — our collective safety is tied with that of other nations.”
This report by The Canadian Press was first published Sept. 13, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
MONTREAL – A 20-year-old man arrested over an alleged Islamic State terror plot to kill Jews in New York City will return to court in December in Montreal.
Muhammad Shahzeb Khan, a Pakistani national living in Ontario, was arrested last week in Ormstown, Que., allegedly on his way across the border into New York state.
Khan has been charged in the United States with one count of attempting to provide material support and resources to a terrorist organization, and officials are seeking to have him extradited to stand trial.
He was not present for a hearing today in Quebec Superior Court, where lawyers said they are waiting for extradition documents and for authorization from Canadian officials before proceeding in the case, which will return before a judge on Dec. 6.
U.S. authorities allege that Khan, also known as Shahzeb Jadoon, intended to use “automatic and semi-automatic weapons” in a mass shooting at a Jewish centre in Brooklyn around Oct. 7, the one-year anniversary of the Hamas attack on Israel.
Authorities allege he began planning his attack in November 2023.
Earlier this week, federal Immigration Minister Marc Miller said Khan arrived in Canada in June 2023 on a student visa.
This report by The Canadian Press was first published Sept. 13, 2024.
