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Canada’s January annual inflation accelerates to fastest pace in 30 years

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Canada’s annual inflation rate accelerated to 5.1% in January, notching a fresh 30-year high, Statistics Canada said on Wednesday.

Analysts in a Reuters poll had forecast annual inflation remaining at 4.8% in January.

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COMMENTARY

DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS, SCOTIABANK

“It’s hotter than expected … To me this suggests that the economy is moving on from Omicron’s effects. The restrictions may have added a little bit to the inflationary pressures. But there is certainly no slowdown. In fact, at the margin as we eliminate capacity we are dealing with greater upside to inflationary pressures.”

SIMON HARVEY, FX MARKET ANALYST FOR MONEX EUROPE AND MONEX CANADA

“This morning’s CPI data showed headline inflation hit the BoC’s Q1 projection, 5.1%, in just the first month of the quarter. While this is quite telling, especially as economist expectations were for a more limited uptick in inflation, the corresponding market reaction has been fairly muted.

“Despite the core and headline measures continuing to tick upwards to multi-decade highs, services inflation ex-shelter actually fell in January and measures of how broad inflation pressures are in the Canadian economy continue to track below H2 2021 averages.”

ANDREW GRANTHAM, SENIOR ECONOMIST, CIBC CAPITAL MARKETS

“Unfortunately, this may not be the peak for inflation, with further evidence of building price pressures so far in February. With gasoline prices rising further in the first half of the month, a big dairy price increase hitting at the start of February, and the possibility of supply chain issues stemming from recent protests, headline inflation could push further above the 5% mark before finally starting to moderate thereafter.”

ROYCE MENDES, HEAD OF MACRO STRATEGY AT DESJARDINS GROUP

“Canadian consumer prices surged higher in January. Prices rose 0.9% month-over-month not-seasonally adjusted, which saw the annual rate of inflation accelerate to 5.1%. That easily surpassed the consensus forecast, and even our above-consensus call. Rising fuel costs were again a major contributor to the monthly gain, as were food and shelter prices. Increasing grocery bills is likely a trend that continued into February, with protests blocking key trade arteries for food. On shelter, the rising price of homes is now filtering into CPI more clearly.

“With energy prices continuing to rise, inflation is set to accelerate even further and is unlikely to materially slow down before April. Still, that’s not enough to justify a 50bp hike by the Bank of Canada in March, nor the seven rate hikes priced in to markets for this year. It’s clear that central bankers need to tighten policy, but high household debt levels will temper the Bank of Canada’s aggressiveness.

“Markets seemed positioned for a print hotter than the consensus given last week’s US CPI surprise and this morning’s UK inflation numbers. So some of the immediate market reaction is fading.”

STEPHEN BROWN, SENIOR CANADA ECONOMIST AT CAPITAL ECONOMICS

“Consumer price inflation rose by more than expected at the start of 2022 and the breakdown suggests that inflationary pressures are broadening, which adds to the pressure for the Bank of Canada to begin tightening policy next month.

“A 0.6% m/m seasonally adjusted rise in consumer prices caused headline inflation to reach a 31-year high of 5.1% in January, in contrast to the consensus estimate that it would be unchanged at 4.8%. The increase in prices was broad-based; shelter prices increased by 0.6% m/m as housing rents continued to recover, food prices rose by 0.5% m/m as supply chain disruptions and unfavourable growing conditions pushed up fresh meat and vegetable prices, and transportation prices rose by a further 0.7% m/m, as gasoline prices picked up again. There were strong rises in each of the three core inflation measures, with CPI-common increasing by 0.2%-points to 13-year high of 2.3%, while CPI-trim and CPI-median both jumped by 0.3%-points to 4.0% and 3.3%, respectively.

“As consumer prices increased by just 0.1% m/m in February and March of last year, unfavourable base effects mean that headline inflation will almost certainly rise further over the rest of the first quarter. We expect headline inflation to then fall sharply over the rest of the year, as goods and energy inflation ease but, with wage pressures growing, core inflation is likely to remain above 2% throughout the next couple of years.”

 

(Reporting by Fergal Smith,; Editing by Steve Scherer)

Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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