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Canada's inflation explained: How the surge affects you and what you can do about changing prices – The Globe and Mail

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A man shops at a halal grocery store in Toronto this past May. Rising inflation has had varied effects on the price of consumer goods across Canada.

Christopher Katsarov/The Globe and Mail

What is driving inflation?

Probably the biggest factor in this year’s inflation surge is simply the reality that consumer prices fell to unusual lows last year, and it’s against these low prices that we are measuring the current price environment. This is what economists are talking about when they refer to “base effects.”

When the COVID-19 pandemic hit, huge swaths of the global economy were shut down and consumers were told to stay home; demand for many goods and services plunged and prices slumped. Since inflation is typically calculated as a year-over-year change, it’s against these lows that we have been comparing the current prices, which have increased substantially as pandemic restrictions have eased. The pronounced weakness of the year-earlier comparisons have magnified the price gains in the annual inflation rate.

But there’s more to it than just a statistical quirk. The rapid reopening of many sectors of the economy has unleashed a flood of demand from consumers, which has been exacerbated by the unusually large stockpiles of household savings that built up during the pandemic.

Around the world, manufacturers, transporters and retailers have had tremendous trouble keeping up with demand. In addition, the pandemic has shifted consumer preferences to different products – home office equipment, bicycles, bigger houses in the suburbs, just to name a few – and suppliers haven’t been able to keep pace with these rapid shifts. The result has been supply shortages in numerous consumer goods as well as the raw materials to make them – driving up prices.

How does the current Canadian inflation rate compare historically?

The August consumer price index (CPI) inflation rate is 4.1 per cent, up from 3.7 per cent in July. The last time the rate was higher was in March, 2003 (4.2 per cent), during a temporary surge that was another case of base effects – namely, a slump in year-earlier gasoline prices.

But from a broader historical perspective, 4.1 per cent is, comparatively, nothing. Inflation was north of 10 per cent in the mid-1970s and again in the early 1980s. In the early 1990s, when the Bank of Canada formally adopted maintaining low and steady inflation as its primary monetary policy objective, inflation still hovered around 5 per cent. But since the central bank set its inflation target at 2 per cent in 1995 – using interest rates to help steer inflation toward that rate – inflation has averaged very close to that target.

What types of products or services are most affected by inflation?

Main upward contributors to the 12-month change in the consumer price index

Aug. 2020 to Aug. 2021

Homeowners’ replacement cost index

+14.3%

Gasoline

+32.5%

Food purchased

from restaurants

+3.2%

Other owned accommodation expenses

+14.3%

Purchase of passenger vehicles

+7.2%

MURAT YÜKSELIR / THE GLOBE AND MAIL,

SOURCE: STATISTICS CANADA

Main upward contributors to the 12-month change in the consumer price index

Aug. 2020 to Aug. 2021

Homeowners’ replacement cost index

+14.3%

Gasoline

+32.5%

Food purchased

from restaurants

+3.2%

Other owned accommodation expenses

+14.3%

Purchase of passenger vehicles

+7.2%

MURAT YÜKSELIR / THE GLOBE AND MAIL,

SOURCE: STATISTICS CANADA

Main upward contributors to the 12-month change in the consumer price index

Aug. 2020 to Aug. 2021

Homeowners’ replacement cost index

+14.3%

Gasoline

+32.5%

Purchase of

passenger vehicles

+7.2%

Other owned accommodation expenses

+14.3%

Food purchased

from restaurants

+3.2%

MURAT YÜKSELIR /

THE GLOBE AND MAIL,

SOURCE: STATISTICS CANADA

The August CPI data from Statistics Canada show that goods (up 5.8 per cent year over year) have seen much higher inflation than services (up 2.7 per cent). The big contributor has been gasoline, up more than 32.5 per cent from a year earlier, when prices were severely depressed by pandemic shutdowns. Home replacement costs were up almost 14.3 per cent, reflecting the surge in prices for homes in the past year.

On the other hand, prices for some things have declined significantly in the past year. Mortgage interest costs were down 9.3 per cent in August from a year earlier, reflecting deep rate cuts that the Bank of Canada made last spring to aid the economy in the face of the pandemic. The price of telephone services was down 14.2 per cent. Travel tours are down 20.8 per cent year over year.

Main downward contributors to the 12-month change in the consumer price index

Aug. 2020 to Aug. 2021

Passenger

vehicle

insurance

premiums

Mortgage

interest

cost

Travel

tours

Telephone

services

Fresh

vegetables

THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA

Main downward contributors to the 12-month change in the consumer price index

Aug. 2020 to Aug. 2021

Passenger

vehicle

insurance

premiums

Mortgage

interest

cost

Travel

tours

Telephone

services

Fresh

vegetables

THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA

Main downward contributors to the 12-month change in the consumer price index

Aug. 2020 to Aug. 2021

Passenger

vehicle insurance

premiums

Travel

tours

Telephone

services

Mortgage

interest cost

Fresh

vegetables

THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA

How can I adjust my spending to avoid the worst of inflation?

If you’re spending, be inflation-aware. Consider planning your renovation for next year or 2023 in hopes prices for building materials ease back. Lumber prices have come back down, but other costs may still be elevated. Prices for new and used cars have been on the rise as people resume driving farther than the local grocery store. Where possible, keep your existing ride for another year or so until the post-pandemic vehicle-buying rush dies down. Grocery inflation is expected to continue through the rest of the year. If you’re able to buy in bulk, you may be able to dodge some future price increases.

Is there a ‘winner’ in inflation?

There are some investments that have performed well in past periods of inflation. Gold is one example, while others are commodities like oil and metals. Real estate is also considered a good hedge against inflation. You can get exposure to real estate by investing in real estate investment trusts.

What will bring inflation down?

Time – at least for a significant portion of the increase. Over the next few months, the year-over-year price comparisons will become less stark, as the price recovery from the earlier COVID-19 shutdowns increasingly works its way into the year-earlier numbers. For example, the average national price of gasoline in August, 2020, was $1.06.6 a litre; by mid-February of 2021, it was $1.20. In addition, we can expect unusual price pressures caused by the sudden reopening of many sectors of the economy to ease, as the initial rush of demand moderates and activity returns to normal.

Many economists believe that the high prices themselves will help solve the inflation situation, as it adds incentive to producers to increase their capacity. This will take time, but as supply catches up with demand, price pressures will dissipate.

From a policy standpoint, the biggest weapon lies with the Bank of Canada. If inflation remains persistently high, the central bank will eventually step in and raise its key interest rate from the current record low of 0.25 per cent. The bank has already taken other actions to reduce the amount of stimulus that its monetary policy is injecting into the economy – specifically, it has gradually reduced the amount of government bonds that it has been buying on the open market since the COVID-19 crisis began.

Interest rates are considered the bigger weapon to slow inflation; but the bank has said that it doesn’t want to turn to rate hikes until the economy has returned to full capacity. Based on the bank’s latest projections, that is unlikely before the second half of next year. In the meantime, the central bank is willing to tolerate inflation in the 3-per-cent range – which actually represents the top end of its tolerance band around its target of 1-to-3 per cent, designed to give it some flexibility when inflation gyrates. But if inflation stays above that band for uncomfortably long, the bank may start leaning toward acting sooner rather than later.

A key question is how much of this is temporary, and how much may be permanent. While economists are generally confident that a substantial portion of the recent inflation surge will pass as things return to something approaching normal in the coming months, it’s clear that at least some of these price pressures may be longer lasting.

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B.C. Children's Hospital reports troubling influx of kids with colds and flu – Vancouver Sun

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Health officials say a surge in respiratory syncytial virus is happening earlier than normal this year.

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B.C. Children’s Hospital reported Wednesday a spike in non-COVID-19 respiratory viral illnesses, such as colds and flus in children.

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That means the emergency room has been busier than normal and long waiting times can be expected.

Thirty per cent of all cases in the hospital’s emergency department in the past month have been children with respiratory illnesses, according to Dr. Claire Seaton, a pediatrician at B.C. Children’s Hospital.

Rates of severe infection caused by COVID-19 remains low and overall only two per cent of people hospitalized in B.C. are under the age of 19.

“That hasn’t changed but what has changed is we are seeing a lot of other viruses, including respiratory syncytial virus, and parainfluenza, along with some of the other common cold viruses.”

Respiratory syncytial virus, or RSV, is a common virus that causes infections of the lungs and respiratory tract, and most children have been infected with the virus by age two. RSV symptoms are mild in healthy children and adults but the virus can cause severe infection in young infants, especially those born prematurely, or young children who have heart of lung disease.

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Seaton said they didn’t see many children with colds or flus last year, so they are worried it’s going to get a lot busier in the emergency department because of the RSV surge.

It is not unusual to see a spike in cold and flu viruses after kids go back to school in September and October but this year the kids may have reduced immunity to these common illnesses because it just wasn’t around last year.

Public health measures such as wearing masks, keeping a physical distance, washing hands, and getting a flu vaccine can help to keep the kids safe, she said.

Part of the reason for the surge at B.C. Children’s may be because parents are worried their child has COVID-19 so they take them to the emergency room.

Seaton said if a child has a cough or the sniffles then it’s best to keep them home from school or take them to get a COVID test , but it’s not always necessary to go to the emergency room.

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“I think it’s important to realize that the viral surge has already increased hospitalization rates in other parts of Canada,” she said. “So the RSV surge, which normally happens in November, is happening earlier this year … and we are starting to see those cases here.”

If parents are worried about their child’s illness they can check symptoms on the B.C. Children’s Hospital website.

“For respiratory illness, you should take your baby or young child to an emergency department if they have trouble breathing, significant problems with breathing or lips that look blue, and if your baby can’t suck or drink or feed very well,” she said, adding infants younger than three months with a fever should also be brought in to the ER.

Doctors and health experts are recommending that children six months and older get a flu vaccine this year, especially because of the potential for reduced immunity.

“Last year, the rates for RSV infection were very low or basically non-existent so we have a whole year’s worth of children who did not get those viruses so their natural immunity is potentially lower,” she said.

ticrawford@postmedia.com


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Canada competition watchdog may have to rely more on litigation – top official

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 Competition Bureau Canada watchdog may have to rely more on litigation after its proposed veto of a takeover was overturned, and this could make life harder for companies seeking to merge, the agency head said on Wednesday.

Matthew Boswell, commissioner of competition, noted his bureau had tried this year to block western Canadian oil and gas waste firm Secure Energy Services Inc from buying rival Tervita Corp.

Secure then turned to the independent Competition Tribunal, which denied the bureau’s injunction and underscored “the high bar that needs to be met to prevent mergers … that we allege are anti-competitive,” he said.

The tribunal, he said, had acted so quickly that the bureau had not had time to present all its evidence, raising valid questions about the state of competition laws in Canada.

“This decision has significant implications for how we conduct future merger reviews, particularly in cases where there are competition concerns,” Boswell said in a speech to the Canadian Bar Association.

“This may mean that we must pursue a litigation-focused approach that is costly and less predictable for merging parties,” he added.

Secure relied on the so-called efficiencies defense, which is unique to Canada. Boswell said this procedure allowed the tribunal to allow an anti-competitive merger to proceed if the transaction was deemed to produce efficiency gains that were greater than its anti-competitive effects.

“The efficiencies defense raises significant practical

challenges for the Bureau to estimate and measure anti-competitive harm,” he said. “(We should) ask ourselves whether our competition laws are really working in the best interest of all Canadians.”

The bureau is an independent law enforcement agency set up to ensure fair competition. It investigates price fixing, bid-rigging and mergers, among other matters.

 

(Reporting by David Ljunggren; Editing by Cynthia Osterman)

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Canadian home price growth slows to near standstill in September

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Canadian home prices barely rose in September from August as a recent slowdown in housing sales weighed, data showed on Wednesday.

The Teranet-National Bank Composite House Price Index, which tracks repeat sales of single-family homes in 11 major Canadian markets, rose 0.1% in September from August, marking the fourth consecutive month in which the monthly price increase was lower than the previous month.

“The slowdown in price growth can be linked to the slowdown in housing sales reported in recent months by the Canadian Real Estate Association,” Daren King, an economist at National Bank of Canada, said in a statement.

Eight of the 11 major markets rose, led by a 1% gain for Winnipeg, while prices were stable in Montreal and fell in Vancouver as well as in Ottawa-Gatineau. It was the first time in seven months that gains were not seen in all 11 regions.

On an annual basis, the index was up 17.3%, decelerating after it notched record annual growth in August. It was paced by a 31.7% gain in Halifax and a 28.0% gain in Hamilton.

 

(Reporting by Fergal Smith; Editing by Steve Orlofsky)

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