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Brace for another Bank of Canada rate hike: What economists say about the latest inflation report – Financial Post

Published

1 year ago

June 28, 2023

Harry Miller

Inflation accelerates in May to 3.4 per cent, the slowest pace since June 2021

Grocery prices increased at the more than double to pace of inflation in May. Photo by Darryl Dyck/The Canadian Press

Inflation in Canada slowed in May to 3.4 per cent, matching economist estimates, but many don’t think that will be enough to convince the Bank of Canada to back away from another interest rate hike at its next meeting on July 12.

May’s consumer price index (CPI) increase was the smallest since June 2021, Statistics Canada said in a release on June 27. The CPI slowed a full percentage point from an unexpected acceleration in April of 4.4 per cent. Monthly inflation grew 0.4 per cent in May, or 0.1 per cent on a seasonally adjusted basis.

“The Bank (of Canada) will still be pleased to see that the CPI rose by just 0.1 per cent month over month this May and that the monthly gains in CPI-trim and CPI-median (the bank’s preferred inflation measures) each slowed to 0.2 per cent,” Stephen Brown, deputy chief North American economist at Capital Economics, said in a note.

There were other signs of inflation retreating, Charles St-Arnaud, chief economist with Alberta Central, said in a note.

For example, the number of components included in the CPI that rose between three and five per cent in May continued to shrink meaning inflation is less broad-based in the economy, St-Arnaud said.

However, economists said the year-over-year readings for the Bank of Canada’s preferred inflation measures remain stuck well above the bank’s two per cent target.

“No matter how you slice it, inflation remains a serious issue for the BoC,” Benjamin Reitzes of BMO Economics said in a note.

Prior to the inflation release, markets were pricing in a 70 per cent chance of an increase at the central bank’s July meeting. Post-announcement, that fell to 60 per cent, according to Bloomberg.

There is still plenty of important data to come that will factor into the Bank of Canada’s decision-making on July 12 including GDP for April and the central bank’s Business Outlook Survey, both out on June 30. The June jobs report will be released on July 7.

Here’s what economists are saying about the latest inflation numbers and what they could mean for the Bank of Canada.

Stephen Brown, Capital Economics

“While the steep declines in both headline and core inflation in May were partly due to favourable base effects, the monthly gains in each also slowed compared to April. That probably won’t be enough to persuade the Bank of Canada to stand pat at its meeting next month, but it does add to our sense that the bank will not be forced to raise interest rates beyond five per cent, implying just one more 25 basis-point hike.

Maria Solovieva, TD Economics

“Canadian inflation continued to cool in May, but progress is unlikely to be enough to prevent the Bank of Canada from raising rates in July. Improvements in core inflation are slow, particularly on the services side, with inflation picking up in discretionary areas like travel services and restaurant meals (6.8 per cent year over year in May). Cooler goods inflation is welcome, but the BoC has likely been counting on that already as supply chain snarls improve.

“Looking at the bank’s core measures, governor (Tiff) Macklem may have a Bon Jovi earworm, humming, ‘whoa, we’re half way there.’ But, there is still a ways to go to get inflation all the way back to two per cent. And the bank would rather not be ‘livin’ on a prayer,’ and is likely to take rates another quarter point higher in July to ensure demand, and hence price pressures cool further.”

Benjamin Reitzes, BMO Economics

“While the softer-than-expected core prints are a bit of good news, every inflation metric remains far above the two per cent inflation target. Accordingly, Bank of Canada policymakers won’t breathe a huge sigh of relief after this report as core inflation remains sticky and has yet to show signs of a durable slowdown. The odds of a July rate hike might be slightly lower now, but if the rest of the data hold up over the next two weeks, a hike still looks likely.”

Jay Zhao-Murray, currency analyst, Monex Canada

“The breadth of inflation fell, with around half of the components running above target in May, compared to roughly three-quarters when averaged over the past three months. This could be an early sign of cooling price pressures after months of re-acceleration, but the fact remains that the monthly pace of price increases was still twice as strong as it would be if inflation were back to normal and the underlying core measures remain too high for comfort. For this reason, we do not think this single improved report is enough to prevent the Bank of Canada from hiking rates again in July, but it reduces the risk that they will take the overnight rate above five per cent. This merely confirms our view on the BoC’s implied rate path, with the risk of inaction at July’s meeting now centred on the data released over the next two weeks.”

Claire Fan, RBC Economics

“The ‘headline’ inflation rate is likely to fall further in June – potentially down to the top end of the Bank of Canada’s one per cent to three per cent target range – as energy prices this year continue to compare to very high year-ago levels. Beyond that, further slowing in broader inflation readings all the way back to the two per cent target will be much harder to come by.

“Although slowing, underlying inflation trends in Canada are still running well-above the BoC’s two per cent target. Higher interest rates are cutting into household purchasing power, but spending to-date has been firm. Labour market conditions are also more resilient than expected in 2023 to-date. GDP data and the BoC’s own Q2 Business Outlook Survey later this week will be watched closely for signs that the economy is losing momentum. But absent a large downside surprise from those data releases, we continue to expect the bank to hike the overnight rate by another 25 basis points in July, before stepping back the sideline for the rest of this year.”

Charles St-Arnaud, Alberta Central

“Inflation continues to moderate but remains well above the BoC’s target of two per cent, while inflation expectations remain elevated and inflationary pressures remain broad and likely sticky. The BoC is likely to consider the recent inflation dynamic, as measured by the three-month annualized changes, slightly concerning and could support another increase in interest rates at the July meeting.

“However, higher interest rates are having a significant impact on inflation. We estimate that inflation excluding food, energy and mortgage interest payments is about 2.3 per cent and its three-month over three-month annualized change is around 2.5 per cent. This means that excluding the impact of the rate hikes, underlying inflation is in line with the BoC’s target and would not support further rate increases.

“Ultimately, whether the BoC hikes in July may hinge on the strong momentum in the economy, with the strong labour market and consumer spending, and the desire of the BoC to restore its credibility as an inflation fighter and influence inflation expectations.”

David-Alexandre Brassard, chief economist, CPA Canada

“Inflation is coming in lower than expected for May 2023. The month-over-month variation (0.4 per cent) is more indicative of the remaining inflation than the year-over-year variation due to the inflationary spike of May 2022. The pressure on prices is coming from service industries: strong service consumption is driving demand and constrained labour is impairing supply. It remains a coin toss whether the Bank of Canada will implement an additional hike in July.”

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Transat AT reports $39.9M Q3 loss compared with $57.3M profit a year earlier

Published

1 day ago

September 12, 2024

Anne Joseph

MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.

The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.

The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.

Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.

On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.

Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.

This report by The Canadian Press was first published Sept. 12, 2024.

Companies in this story: (TSX:TRZ)

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Dollarama keeping an eye on competitors as Loblaw launches new ultra-discount chain

Published

2 days ago

September 11, 2024

Anne Joseph

Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.

“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.

“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”

Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.

However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.

The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.

Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.

“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.

Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.

“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.

The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.

The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.

The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”

“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.

Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.

Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.

She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”

Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.

To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.

“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”

The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.

“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.

“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”

This report by The Canadian Press was first published Sept. 11, 2024.

Companies in this story: (TSX:DOL)

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U.S. regulator fines TD Bank US$28M for faulty consumer reports

Published

2 days ago

September 11, 2024

Anne Joseph

TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.

The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.

It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.

CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.

TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.

The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.

This report by The Canadian Press was first published Sept. 11, 2024.

Companies in this story: (TSX:TD)

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