Bank of Canada official Nicolas Vincent has warned there could still be significant hurdles when it comes to getting inflation back to the central bank’s target of two per cent.
The Montreal speech on Oct. 3 was the first by Vincent in his role as external non-executive deputy governor. He is also an economics professor at HEC Montréal.
Beyond the human toll, the COVID-19 pandemic upended the economic orthodoxy in ways the central bank did not necessarily account for. With little to do and nowhere to go, Canadians accumulated savings at a rapid clip — hitting a savings rate high of 26.5 per cent in the second quarter of 2020 — which is still being drawn down. This, in combination with a surprisingly resilient labour market, has led to pent-up demand — and the cash to back it up — creating supply-demand imbalances, said Vincent.
“A robust labour market and savings accumulated during the pandemic have supported strong consumption,” he said. “This has created what economists call a state of excess demand — a situation where demand runs ahead of supply— thereby driving up prices and wages.”
Then there are the factors the Bank of Canada can’t control, such as energy prices, which are determined by global markets. Gasoline prices, for example were up 0.8 per cent year-over-year in August, according to data from Statistics Canada (after falling 12.9 per cent year-over-year in July), making it one of the main contributors to headline inflation’s rise to four per cent. That higher cost of gas raises the cost of many other goods and services. Your local restaurant, for example, has to get its vegetables somewhere, and the increased costs it faces are passed along to consumers, contributing to higher inflation.
Not just consumers changed their behaviour through the pandemic: companies did as well, said Vincent, increasing prices with a greater frequency than economists have observed in the past.
“Price increases were larger than normal during this period, driven by the higher costs that firms were facing and helped along by strong demand. Firms also raised prices more frequently than usual,” he said. “We believe that this behaviour by firms — both here and abroad — is intimately linked to the stronger-than-expected inflation we’ve seen.”
That essentially led to a game of chicken, where firms gauge whether their competitors are able to secure enough supply to meet demand, and then raise their prices to protect their profit margins if they suspect competitors will be unable to secure an adequate flow of goods. Ultimately, this behaviour raises prices for consumers.
The biggest risk, said Vincent, is there’s a chance these price increases — and consumer concerns over future price increases — become a self-fulfilling prophecy, further fuelling inflation in the near-term as shoppers look to avoid higher prices down the line, creating a “feedback loop.”
“Perhaps the biggest risk of all is the idea that recent pricing behaviour could become self-perpetuating. If you continue to expect your suppliers and competitors to make frequent price changes, you might be more prone to do the same yourself, creating a feedback loop,” he said.
“Under certain conditions, this could make prices even more sensitive to shocks. In other words, if recent pricing behaviour settles into a new normal, it could complicate our return to low, stable and predictable inflation.”
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
The Canadian Press. All rights reserved.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
Companies in this story: (TSX:ROOT)
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VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
The Canadian Press. All rights reserved.
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