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Canadian inflation seen peaking at or above 6%; more rate hikes in the cards

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A commodities rally sparked by Russia’s invasion of Ukraine will push Canadian inflation higher for longer, with the headline rate now seen peaking at or above 6%, forcing the central bank to raise interest rates more aggressively, economists told Reuters.

Canada’s inflation rate has already surged well above the 5.1% that the Bank of Canada forecast for the first quarter in January, highlighting the tough road ahead to get price growth back down to the 2% target.

 

Graphic: Canada’s annual inflation rate: https://graphics.reuters.com/CANADA-ECONOMY/INFLATION/egpbkqrxrvq/chart.png

 

The central bank will have to balance efforts to tamp down on soaring prices against the risks that spiraling levels of mortgage debt could make Canada’s economy more sensitive to interest rate hikes than before the coronavirus pandemic.

Some investors worry that the BoC could cut short the economic expansion if it tightens too fast.

A Reuters survey of economists at five leading financial institutions and a consultancy showed that most now expect the Bank of Canada to hike borrowing costs four to five times in 2022, lifting its policy rate to 1.25% or 1.5% by the end of the year. Scotiabank is forecasting a year-end policy rate of 2.5%.

Canada’s latest inflation data on Wednesday surprised on the upside, with the Consumer Price Index hitting a new 30-year high of 5.7% in February. The jump was driven by broad gains across all sectors.

All six economists surveyed now see inflation peaking at or above 6% in the coming months, with their year-end forecasts ranging from 3.3% to 5.8%. The BoC in January forecast fourth-quarter inflation of 3.0%.

“The commodity price increases that we have seen in the past couple of weeks – that’s something that a central bank would normally want to look through,” said Josh Nye, a senior economist at RBC Capital Markets who was among those surveyed.

“But with inflation already so far above the Bank of Canada’s target, they’ve said they’re more concerned about upside surprises than they are about downside surprises on inflation.”

CATCHING UP

The central bank raised its policy rate to 0.50% from 0.25% this month, its first increase in three years. Bank of Canada Governor Tiff Macklem said more rate hikes were coming and he left the door open to a rare half-percentage-point increase.

Money markets see a roughly 50% chance of the larger rate increase when the central bank issues its next policy decision on April 13. It has been almost 22 years since Canada saw a 50-basis-point rate hike.

The conflict in Ukraine and ensuing sanctions on Russia have played havoc with global supply chains, sending prices of many key commodities higher. Russia is one of the world’s biggest energy producers, and both it and Ukraine are among the top exporters of grain.

Nye estimated the surge in oil prices since late February on its own will add about three-quarters of a percentage point to Canada’s CPI.

U.S. inflation is expected to average 7.7% this quarter, according to a Reuters poll of 69 economists last week, up from the 7.1% forecast in February.

With Canada’s economy firing on all cylinders, its central bank must now act forcefully on interest rates to tame price surges, said Derek Holt, head of capital markets economics at Scotiabank.

“Given how far behind the inflation curve the Bank of Canada finds itself, they need to do something more convincing in order to demonstrate that they are serious about their inflation mandate,” said Holt, who also participated in the survey.

Still, the central bank will need to take into account the potential that war will slow global economic activity, while also balancing the inflationary pressures coming from supply shortages due to the latest COVID-19 restrictions in major Chinese manufacturing hubs.

“There is the probability of renewed supply chain issues in other goods that will also keep inflation more elevated than we previously anticipated,” said Andrew Grantham, a senior economist at CIBC Capital Markets who was among those surveyed.

 

Graphic: Forecasts for Canadian interest rates: https://graphics.reuters.com/CANADA-ECONOMY/INFLATION2/mypmnxdnnvr/chart.png

 

(Reporting by Julie Gordon in Ottawa; Editing by Denny Thomas and Paul Simao)

Business

A timeline of events in the bread price-fixing scandal

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

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