In analyzing the causes of high inflation in Canada, many experts point to interest rates that were too low for too long, along with surging commodity prices.
But Canadians may want to consider another culprit: their neighbours to the south.
In a recent working paper, three researchers at the U.S. Federal Reserve dissect the role of fiscal stimulus in today’s inflation shock. They note that a “generous” response to the pandemic, particularly from the U.S. government, led to an increase in demand for goods that was not matched by supply – and ultimately spilled into other countries.
For Canada, the knock-on effects were sizable. The annual inflation rate in February, 5.7 per cent, was about four percentage points higher than in recent history. Of that “excess inflation,” U.S. fiscal stimulus contributed about 2.3 percentage points, the Fed researchers estimate, pointing out that the impact was much bigger in Canada than elsewhere.
“Canada, a country with strong trade links with the U.S., features a high level of excess inflation related to exposure to foreign fiscal stimulus,” they wrote.
The flare-up in consumer prices is only worsening. Canada’s inflation rate hit 7.7 per cent in May, the highest in almost four decades. Bay Street analysts expect it to be even higher when June figures are published Wednesday. U.S. inflation hit 9.1 per cent in June.
Central bankers are now trying to tame inflation with the quickest pace of monetary policy tightening in decades, notably through a series of interest-rate hikes. The Bank of Canada has raised its key rate to 2.5 per cent from 0.25 per cent in less than five months, and bank officials have signalled that more hikes are coming.
“There is clearly a large component of Canadian inflation that is being driven by the overheated nature of the American economy,” Royce Mendes, head of macro strategy at Desjardins Securities, said in an interview. “The fiscal response was huge, but the delay in reining in monetary stimulus also played a large factor in this as well.”
Like other countries, the U.S. moved quickly to launch pandemic support programs and blunt the financial impact on households. Government spending played a “positive role” during the crisis, the Fed researchers wrote, by supporting a strong economic recovery and likely preventing “worse outcomes.”
The U.S. response was especially large. It spent more than US$5-trillion, or roughly 25 per cent of gross domestic product – proportionally more than most countries.
U.S. stimulus was often paid directly to households. Families could receive three rounds of cheques – regardless of whether their employment was affected by the pandemic. An individual with an annual income of less than US$75,000 could receive US$3,200.
Flush with cash, Americans started loading up on goods, in part because they had fewer options for spending that extra money on services. A speculative mania swept through various asset classes, from stocks to sneakers.
At the same time, businesses couldn’t keep up with demand, with factories and ports often shuttered by public-health measures, leading to supply chain issues that drove up prices.
The Bank of Canada consistently underestimated the inflation threat and said about a fifth of its forecast error was related to global supply chain pressures, including the extent to which people bought goods.
“Instead of weakening as in past downturns, U.S. consumer demand for goods unexpectedly surged well beyond pre-pandemic levels. Supported by fiscal policy measures, U.S. household incomes turned out to be higher than anticipated,” the bank said Wednesday in its monetary policy report.
“Overall, strong foreign demand for tradable goods, such as appliances and furniture, has pushed up prices globally, including for Canadian consumers.”
The Fed researchers outlined three ways fiscal stimulus affects prices. Canadians are paying more for U.S. goods as American companies struggle to keep up with scorching demand. Likewise, Canadians are paying more for productsfrom non-U.S. countries that have seen a boost in American demand. And finally, Americans are ordering more Canadian goods than usual, contributing to the supply-demand imbalance seen at home.
“When we are competing for goods or some services on the global stage, and we’re competing with an extremely strong U.S. economy, we’ll have to pay up to get our fair share of those goods and services,” Mr. Mendes said.
There are, of course, many explanations for the surge in inflation. Rock-bottom mortgage rates fuelled a homebuying boom in Canada, which led to higher housing costs. Commodity prices have also risen sharply, particularly after Russia’s invasion of Ukraine. And supply issues are inextricably tied to public-health measures in other countries, such as recent shutdowns of major cities in China.
Domestic stimulus is another factor, the Fed researchers said. Canada’s fiscal response to the pandemic amounted to roughly 20 per cent of GDP, based on International Monetary Fund estimates from last fall. Government transfers to households spiked in 2020, driving up disposable income and supporting consumption. By June of that year, retail sales in Canada were running above prepandemic levels, despite huge job losses.
Inflation can also be self-fulfilling. For instance, companies may raise prices in anticipation of higher costs.
“I really think that the Bank of Canada is going to have to see a lot of things go right that are outside of its control to return inflation to target without causing a recession,” Mr. Mendes said. Those include an easing of supply chain troubles, lower energy prices and the U.S. economy cooling to a more sustainable position, he said.
“It’s an extremely tough spot for them to be in.”
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Crude oil prices moved higher today, after the Energy Information Administration estimated a draw in oil inventories of 7.1 million barrels for the week to August 12.
This compared with a build of 5.5 million barrels reported for the previous week. A day earlier, the American Petroleum Institute estimated a modest crude draw of 448,000 barrels for the week to August 12.
In gasoline, the EIA estimated an inventory draw of 4.6 million barrels for last week, which compared with a 5-million-barrel decline for the previous week.
Gasoline production averaged 10 million bpd last week, which compared with 10.2 million bpd during the previous week.
In middle distillates, the EIA reported an inventory build of 800,000 barrels, which compared with a much needed build of 2.2 million barrels for the previous week as inventories have fallen to critical levels.
Middle distillate production averaged 5.1 million barrels daily, compared with 5.1 million bpd for the previous week.
Oil prices hit the lowest in six months earlier this week but recovered after the API report as it suggested demand for oil remained stable despite the challenging economic situation.
“A drawdown of U.S. gasoline stockpiles for a second straight week has reassured investors that demand is resilient, prompting buys,” one oil analyst from Fujitomi Securities told Reuters this week.
“Still, the oil market is expected to stay under pressure, with fairly high volatility, due to worries over a potential global recession,” Kazuhiko Saito added.
The volatility is being fed also by continued uncertainty about the Iran nuclear deal, after Iran sent a written response to the EU’s latest proposal with Iranian media suggesting it won’t accept it as is.
Another factor fuelling price volatility are the latest oil demand figures from China, which were weaker than many expected.
Airbnb says it will use new methods to spot and block people who try to use the short-term rental service to throw a party.
The company said Tuesday it has introduced technology that examines the would-be renter’s history on Airbnb, how far they live from the home they want to rent, whether they’re renting for a weekday or weekend and other factors.
Airbnb said the screening system that it is rolling out for listings in Canada and the United States has been tested since last October in parts of Australia, where it produced a 35 per cent drop in unauthorized parties.
The San Francisco-based company said the technology is designed to prevent a customer’s request for reservation from ever reaching the host of the property involved. Airbnb said people blocked from renting an entire home might be able to book a single room because the host is more likely to be around.
Worldwide party ban implemented in 2020
Airbnb has been under growing pressure to clamp down on parties since 2019, when a Halloween house party in a San Francisco suburb ended with five people dead in a shooting.
The following year, Airbnb announced a worldwide party ban at its listings and banned people under 25 from renting an entire house near their home unless they had a record of positive reviews on the site.
In 2020, the company suspended more than 40 listings in Ontario alone, targeting hosts who had received warnings, complaints, or had otherwise violated company’s party policy in the year prior.
Last October, a municipality in Quebec temporarily suspended short-term listings when an Airbnb party attracted over 500 attendees.
The party ban was initially cast as a temporary health measure during the pandemic, as more people moved from bars and clubs into rented homes, but was made permanent in June.
Canadian department store Zellers hopes to make a comeback next year, a decade after the discount chain shuttered most of its locations.
Hudson’s Bay Co. says Zellers will debut a new e-commerce website and expand its brick-and-mortar footprint within select Hudson’s Bay department stores across the country in early 2023.
What do you remember about shopping at Zellers? Let us know in an email to firstname.lastname@example.org
The company says the relaunched Zellers will offer “a digital-first shopping journey that taps into the nostalgia of the brand.”
In an email to CBC News, a spokesperson for Hudson’s Bay did not confirm where the new Zellers stores will be located.
Initial inventory will include housewares, furniture and toys, with apparel to be introduced later in the year. The company also plans to launch a private brand, according to the release.
Lawsuit over Zellers brand ongoing
The return of Zellers comes as soaring inflation drives consumers to discount retailers in search of lower prices. It follows Tuesday’s announcement from Hudson’s Bay that outdoor gear retailer MEC will open shops in three Bay department store locations this fall.
It also comes amid an ongoing lawsuit over a Quebec family’s use of the Zellers brand.
The Moniz family is behind various recent trademark applications and corporate registries, including Zellers Inc., Zellers Convenience Store Inc. and Zellers Restaurant Inc.
In a statement of claim filed last fall, HBC accused the Moniz family of trademark infringement, depreciation of goodwill and so-called passing off — the deceptive marketing or misrepresentation of goods.
Bruce Winder, a Toronto-based retail analyst, said he believes the Zellers revival is partly a reaction to the lawsuit.
“They need to demonstrate that they are still interested in the brand and there’s no better way to do that than actually open some stores,” Winder said.
Mixed reaction from consumers, retail strategists
CBC News heard a range of responses from consumers with fond — and not-so-fond — memories of shopping at Zellers. Some are hoping for the return of the in-store restaurant and the brand’s mascot, Zeddy.
Others expressed hope that Zellers could compete with big-box stores such as Walmart and Giant Tiger.
“I always thought the Zellers was the store that catered to everyone, and I was very disappointed to see it go,” said Diane, a longtime resident of Toronto’s Richmond Hill neighbourhood.
“And then we had Target. It didn’t meet up to the Zellers standards. I would love to see it come back. I think it would service a lot of people from different incomes.”
Others recalled bad customer service experiences, a shortage of advertised products and understaffed stores. Some expressed concern that the store wouldn’t carry locally made products.
Seeing way more posts about <a href=”https://twitter.com/hashtag/Zellers?src=hash&ref_src=twsrc%5Etfw”>#Zellers</a> today than I ever did in the 90s
Mark Satov, a strategy adviser at Toronto-based Satov Consultants who worked with Zellers in the past, is cautiously optimistic about the brand’s resurrection.
“They probably have to spend a little less to resurrect this brand than to create a new brand,” he said.
Satov added that he doesn’t think the brand has a negative connotation among consumers — but it wasn’t a successful business, which is why it was sold, he said.
“I think it’s an OK move. I’m not sure that this is going to be a home run, but let’s see.”
Others have lower expectations. While the move is meant to capitalize on consumers’ nostalgia for the Zellers brand, many will associate the company with a negative shopping experience, according to Craig Patterson, the founder and publisher of retail media site Retail Insider.
“I think people are just excited to get something that was in their lives in the past, and that could be almost anything. But I’m not sure if this Zellers move is going to be a positive one long term for Hudson’s Bay,” Patterson said. “It really remains to be seen in how it’s executed.”
“I think that there is going to be an uphill battle in developing this new brand and creating these shops and stores, as well as this entire new e-commerce division for the Hudson Bay Company, which is, again, an expansion for that company.”
Most stores closed by 2013
The Zellers department store was founded in 1931 and acquired by HBC in 1978.
It operated as the discount division of its flagship Hudson’s Bay department stores, with the slogan “Where the lowest price is the law.”
The store hit its peak of about 350 locations in the late 1990s, before losing ground to big-box competitors such as Walmart.
In 2011, HBC announced plans to sell the majority of its remaining Zellers leases to Target Corp., closing most stores by 2013.
The retailer kept a handful of Zellers locations open as liquidation outlets until 2020.
The company launched a pop-up Zellers shop inside Hudson’s Bay department stores in Burlington, Ont., and Anjou, Que., in 2021.
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