Speaking to a parliamentary committee in Ottawa this week, the bank’s governor, Tiff Macklem, told lawmakers that the bank has noticed a troubling new trend coming out of the corporate sector.
For much of the past few decades, any time businesses have seen a jump in their input costs — the amount they pay for things like raw materials, energy and even workers — “they were pretty cautious about passing on [that cost into] the prices they charged for goods and services,” Macklem said.
Their reasoning was simple: they were afraid of losing customers.
Companies more willing to raise prices lately, says Bank of Canada governor
Featured VideoLast week, Bank of Canada head Tiff Macklem says companies are typically reluctant to raise their prices for fear of losing customers, but high inflation has made them much more willing to do so lately, without worrying that consumers will tap out.
But in this bout of high inflation, the bank has noticed that corporations aren’t nearly as worried about doing that as they typically are.
“When input prices have gone up … those are getting passed through much more quickly to final goods prices. So households are bearing the full inflationary impact much more: that’s what we can see pretty clearly in the data.”
When asked how much of Canada’s current inflationary problem can be blamed on price hikes above and beyond companies’ cost increases, Macklem said, “I don’t think we can put a number on it,” but other central bankers have been far more willing.
In a speech this summer, Christine Lagarde cited data from the European Central Bank she leads showing that for the 20 years leading up to 2022, corporate profits were responsible for about one-third of inflation.
Last year, however, that ratio jumped to two-thirds, which means that despite legitimate increases in their cost of doing business, their take-home share of every consumer dollar effectively doubled.
“Firms cannot continue to display the pricing behaviour we have recently seen,” she said.
‘Profit-led inflation’
Paul Donovan, a London-based economist with Swiss bank UBS, says the scenario described above is what’s known as “profit-led inflation” and he’s been waving red flags about it for most of the past year.
While it has exposed itself to varying degrees in various places around the world, the one condition it requires is a strong narrative: consumers have to believe en masse that price increases are justified, or they won’t accept them.
“Profit-led inflation works until it does not and the point where consumers start to rebel against profit-led price increases disguised as other factors tends to be a tipping point with a sharp turn,” he told CBC News in an email.
While he stresses he isn’t familiar with the situation in Canada, he says in Europe there is ample evidence to show that consumers have reached that tipping point of saying “enough’s enough” and the best place to observe that is very familiar to Canadians: in the grocery aisle.
How these Canadians are dealing with the high cost of living
Featured VideoCBC News spoke to several people in downtown Toronto about the financial challenges they’re contending with, including housing, food and child care, and what they’re doing to keep expenses down.
Last month, the British Retail Consortium noted that “fierce competition between retailers” caused U.K. food prices to decline on a monthly basis for the first time since 2021. Donovan says that’s no accident, as the major chains have started offering deep discounts to their most loyal customers after the latter group started to abandon them
“In the past few months there have been aggressive price discounts — but which apply to people who hold loyalty cards,” he said. “Consumers in the U.K. have shown themselves less willing to believe the narrative of why prices were rising, and supermarkets are eager not to alienate customers and so seek to shore up loyalty through the privileged discount scheme.”
Data from the U.S. shows evidence that price increases may have gotten ahead of themselves, too. A report by the Federal Reserve Bank of Kansas City calculated that markups increased by 3.4 per cent in the U.S. in 2021 — enough to make them responsible for as much as half the increase in the U.S. inflation rate that year.
Jim Stanford, an economist and director at the Centre for Future Work, says its refreshing to see central bankers start to acknowledge that corporate profits have played a disproportionate role in inflation, because for too long Canada’s economic discourse has been trying to put the blame on anything but that.
Burden rests on consumers
“Tiff Macklem has been talking about so-called overheated labour markets nonstop for the last two years,” he told CBC News in an interview. “And now I think they’re they’re finally recognizing that is not the story — or certainly not the whole story.”
Advice for consumers for much of the past year has boiled down to either trying to cut back on expenses, or increasing income, but Stanford says it’s misleading to put the onus on consumers to solve inflation, since they’re the ones bearing the disproportionate burden of it.
“I’m reluctant to say that consumers just need to get better at shopping around. I’ve heard that advice from a dozen people [but] I think it’s unreasonable to expect that somehow consumers have to solve the problem by becoming bargain hunters and spending half their week looking at grocery store leaflets.”
He cites data from Statistics Canada showing that at one point last year, the cost of a unit of labour had increased by a little more than 10 per cent since the start of the pandemic. The per-unit profit, meanwhile, was up by more than 70 per cent over that same time frame.
But the good news, Stanford says, is that trend is starting to reverse.
“The last two quarters in Canada have seen a partial but significant return of profitability back toward normal levels,” he said.
“This actually reinforces the story that profits had a lot to do with that outburst of post-pandemic inflation because on the way up, profits and prices went closely together and on the way down they’re coming down together as well.”
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.
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.
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.
