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Inflation is nearing its fastest pace since the Bank of Canada began using the consumer price index to set interest rates in the early 1990s, increasing the odds that the central bank will raise borrowing costs early in the new year.
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Canada's inflation rate soars to almost 20-year high, raising odds of earlier rate hike – Financial Post
Kevin Carmichael: Bank of Canada’s big worry is stopping rising prices from becoming a self-fulfilling prophecy
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Nov 17, 2021 • 6 hours ago • 4 minute read • 146 Comments
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The CPI surged 4.7 per cent in October from a year earlier, compared with a year-over-year gain of 4.4 per cent in September, Statistics Canada reported on Nov. 17. The CPI also increased 4.7 per cent in February 2003, which had stood alone as the biggest increase since a 5.5 per cent gain in October 1991, a moment when the Bank of Canada was nearing the end of a successful fight against a wave of price increases that peaked around seven per cent earlier that year.
Back in 2003, when annual CPI increases neared five per cent, then governor David Dodge opted to raise interest rates the following month, observing in a statement that “persistent above-target inflation rates over the past few months reflect not only the impact of higher-than-expected crude oil and natural gas prices, but also continuing increases in auto insurance premiums and price pressures in certain sectors such as housing, food and some services.”
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The same could be said of current conditions. October marked the seventh month in a row that headline inflation ran hotter than three per cent, the high end of the Bank of Canada’s comfort zone, while year-over-year increases in the CPI exceeded three per cent for six consecutive months through March 2003. Now as then, the main sources of upward price pressures are crude, natural gas, housing, food and some services.
Yet what to do about inflation remains a dilemma for Bank of Canada governor Tiff Macklem despite the alarming jump in the CPI, because various labour-market indicators suggest the economy remains weak, justifying the benchmark interest rate’s current setting of 0.25 per cent. The biggest driver of the CPI’s latest surge was a 42 per cent increase in gasoline prices, which are being stoked by a severe mismatch between supply and demand in global energy markets. There’s nothing the Bank of Canada can do about that.
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In theory, cost increases that are the result of shortages of inputs such as oil and computer chips should subside as suppliers rush to fill demand. Therefore, the best cure for current conditions is probably patience.
“While our analysis continues to indicate that these pressures will ease, we have taken them into account for the dynamics of supply and demand,” Macklem said in an op-ed published by the Financial Times earlier this week. “What our resolve does mean is that if we end up being wrong about the persistence of inflationary pressures and how much slack remains in the economy, we will adjust.”
Subtract energy from the CPI basket of goods and services and the increase from October 2020 was 3.3 per cent, the same year-over-year gain that was posted in September, Statistics Canada said. That’s still hotter than the Bank of Canada would like, but suggests that underlying price pressures probably aren’t as severe as the headline number makes them out to be. The average of three measures of “core” inflation that the Bank of Canada follows to assess price trends was 2.7 per cent, a reading that falls within the central bank’s comfort zone for inflation of one per cent to three per cent.
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“Changes in domestic monetary policy — although arguably important for signalling reasons — won’t alleviate inflation pressures that are global in nature,” Karl Schamotta, chief market strategist at Cambridge Global Payments, said in an email to clients. “Ebbing supply chain issues, falling commodity prices, and lower levels of fiscal support are likely to prove more important over the year ahead.”
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Bank of Canada ‘getting closer’ to raising interest rates, says Governor Tiff Macklem
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Last time U.S. inflation spiked this much George Bush senior was president
Macklem would look through the recent burst of inflation if not for concern about what the outsized readings will do to expectations of where prices are headed. He and his deputies last month opted to end their bond-buying program and advance by three months their timeline for their first post-pandemic interest-rate increase. The main reason for those moves was to keep inflation from becoming a self-fulfilling prophecy, whereby workers start demanding higher wages and suppliers begin raising prices in anticipation of permanently higher costs.
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That’s a legitimate concern. All the major components of Statistics Canada’s CPI basket increased in October, led by a 10 per cent jump in transportation costs, which capture energy prices. Shelter costs increased 4.8 per cent and food costs rose 3.8 per cent from October 2020. Both those gains were roughly the same as the previous month.
“The recovering economy and hot inflation will likely prompt the Bank of Canada to react and raise interest rates sooner rather than later,” said Ksenia Bushmeneva, an economist at Toronto-Dominion Bank. “We expect the Bank of Canada to start raising its key interest rate in April of 2022, but cannot rule out the possibility the central bank will act earlier if the job market remains resilient and inflation keeps surprising to the upside.”
• Email: kcarmichael@postmedia.com | Twitter:
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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
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Yuri Kageyama is on X:
The Canadian Press. All rights reserved.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
Companies in this story: (TSX:SHOP)
The Canadian Press. All rights reserved.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
Companies in this story: (TSX:REI.UN)
The Canadian Press. All rights reserved.
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