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Core inflation shows no signs of relenting in U.S., raising odds of more big rate hikes

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The Federal Reserve building in Washington on Aug. 22, 2018.CHRIS WATTIE/Reuters

Inflation in the United States showed few signs of easing in September, reinforcing expectations that the Federal Reserve will deliver another oversized increase in interest rates next month and creating a political headache for the Biden administration ahead of key midterm elections.

The U.S. Labour Department said on Thursday that core consumer price inflation, which excludes volatile food and gasoline prices, hit an annual rate of 6.6 per cent last month, the fastest pace in four decades. This puts pressure on the Fed to keep increasing borrowing costs, even as the U.S. economy, and the global economy more broadly, slows down.

The strength and persistence of U.S. inflation is reverberating around the world. The Fed’s aggressive campaign to increase interest rates has made it more expensive to borrow money, while also pushing up the value of the U.S. dollar relative to other currencies, including the Canadian dollar, which increases the cost of U.S. imports.

Thursday’s strong inflation reading could put pressure on the Bank of Canada to continue raising interest rates to keep pace with the Fed. It also increases the odds of a global recession, as higher borrowing costs squeeze U.S. businesses and consumers, particularly in sectors that are interest-rate sensitive, such as housing.

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High inflation has become a political liability for the Biden administration and the Democratic Party ahead of midterm elections on Nov. 8. Republicans have slammed their Democrat opponents on cost-of-living issues, drowning out their attempts to take credit for the country’s strong job market and rapid economic recovery from pandemic lows.

President Joe Biden acknowledged on Thursday that Americans are being squeezed by rising prices. “That’s been true for years, and they didn’t need today’s report to tell them that,” he said in a statement. Inflation is “still too high,” he said, but added that “everyday costs will go up – not down” if the Republicans take control of Congress.

Overall consumer price index inflation in the U.S. was 8.2 per cent last month, down slightly from 8.3 per cent in August and a four-decade high of 9.1 per cent in June.

“This is not what the Fed wants to see six months into one of the most aggressive tightening cycles in decades,” Bank of Montreal senior economist Sal Guatieri wrote in a note to clients.

The central bank has announced three consecutive hikes of 75 basis points, and forecasters now expect another 75-basis-point move in November, and further increases in December and early next year. A basis point is a hundredth of a percentage point.

The Fed – the world’s largest and most influential central bank – has turned increasingly hawkish in recent months in a bid to prevent high inflation from becoming entrenched and to shore up its credibility as an inflation-fighter.

Minutes from the central bank’s most recent rate decision, in September, show that officials are more concerned about doing too little to combat price increases than doing too much and causing a painful economic contraction.

“As the Fed continues with this very aggressive pace of interest-rate hikes, we think more weakness lies in store,” Andrew Hunter, senior U.S. economist with Capital Economics, said in a webcast on Thursday. “We now think the economy is headed for a recession over the coming quarters. We think it should be a relatively mild recession by past standards, but we are penciling in declines in GDP over the first half of next year.”

Stock markets responded to the inflation data with a wild swing. The S&P 500 index fell nearly 2 per cent when markets opened, but quickly rallied, finishing the day up 2.6 per cent. Meanwhile, the yield on two-year U.S. government Treasury bonds jumped more than 20 basis points at the open, hitting 4.5 per cent for the first time since 2007, before ending the day at 4.47 per cent.

The September data show the key drivers of U.S. inflation are shifting from goods to services. Energy prices were down 2.1 per cent that month, led by a 4.6-per-cent drop in gasoline prices. The cost of used cars, clothing and appliances also fell.

But this was offset by a rise in the price of food, medical care and shelter. Rental prices increased 0.8 per cent compared with August. Owners’ equivalent rent, a measure of housing costs for owner-occupied dwellings, also rose 0.8 per cent – the biggest monthly jump since June, 1990.

“The labor-intensive services sector continues to be the main driver behind the persistently high core inflation trends and as the labour market keeps up its strength there is no reason to see this abating in the near term,” Toronto-Dominion Bank analysts, including rate strategist Oscar Munoz, and head of global rates strategy Priya Misra, wrote in a note to clients.

“The only possible bright point is that core goods inflation was flat over the month in September after increasing in the preceding months. This might become negative over the coming months, somewhat counteracting against sticky high core services inflation.”

Last week, Bank of Canada governor Tiff Macklem said the strength of the U.S. dollar, and the Canadian dollar’s relative weakness, means the central bank may have to do more to bring down inflation. The Bank of Canada does not formally target exchange rates, but it does monitor them closely.

“Normally when we raise interest rates, the exchange rate actually appreciates. And so that does part of the work for us. This time, that’s not happening. So other things equal, as economists like to say, that means we have more to do with interest rates,” Mr. Macklem said.

Many analysts expect the Bank of Canada to announce another half-point interest-rate hike at its next rate decision, on Oct. 26.

Mr. Macklem will address reporters on Friday from Washington, where central bankers and finance officials are attending the annual meetings of the International Monetary Fund and World Bank.

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Calgary breaks all-time record in housing starts but increasing demand keeps inventory low – CBC.ca

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Soaring housing demands in Calgary led to an all-time record for new residential builds last year, but inventory levels of completed and unsold units remained low due to demand outpacing supply.

According to the latest report from Canada Mortgage and Housing Corporation (CMHC), total housing starts increased by 13 per cent in Calgary, reaching a total of 19,579 units with growth across all dwelling types in the city.

That compares to a decline of 0.5 per cent overall for housing starts in the six major Canadian cities surveyed by CMHC.

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Calgary also had the highest housing starts by population.

“Part of the reason why we think that might have happened is that developers are responding to low vacancies in the rental market,” said Adebola Omosola, a housing economics specialist with CMHC.

“The population of Calgary is still growing, a record number of people moved here last year, and we still expect that to remain at least in the short term.”

Earlier this year, the Calgary Real Estate Board also predicted that demand, especially for rental apartments, wouldn’t let up any time soon. 

Industry can cope with demand, expert says

According to numbers from the report, average construction times were higher in 2023 for all dwelling types except for apartments.

The agency’s report suggests the increase in the number of under-construction residential projects might mean builders are operating at or near full capacity.

However, there’s optimism the construction industry can match the increasing need.

Brian Hahn, CEO of BILD Calgary Region, said despite concerns around about construction costs, project timelines and labour shortages, the industry has kept up with the demand for new builds.

Demand is expected to remain robust, but the construction industry can keep up, according to BILD Calgary region CEO Brian Hahn.
Demand is expected to remain robust, but the construction industry can keep up, according to BILD Calgary Region chief executive officer Brian Hahn. (Shaun Best/Reuters)

“I’ve heard that kind of conversation at the end of 2022 and I heard it in 2023,” Hahn said.

“Yet here we are early in 2024, and January and February were record numbers again.”

Hahn added he believes the current pace of construction will continue for at least the next six months and that the industry is looking at initiatives to attract more people to the trades.

Increase in row house and apartment construction

Construction growth was largely driven by new apartment projects, making up almost half of the housing starts in Calgary in 2023.

The federal housing agency says 9,034 apartment units were started that year, an increase of 17 per cent from the previous year. Of those, about 54 per cent were purpose-built rentals.

Apartments made up around two-thirds of all units under construction, CMHC said, with the total number of units under construction reaching 23,473.

Growth, however, was seen across all dwelling types. Row homes increased by 34 per cent from the previous year while groundbreaking on single-detached homes grew by two per cent.

“Notwithstanding challenges, our members and the industry counterparts that support them managed to produce a record amount of starts and completions,” Hahn said.

“I have little doubt that the industry will do their very best to keep pace at those levels.”

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Ottawa real estate: House starts down, apartments up in 2023 – CTV News Ottawa

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Rental housing dominated construction in Ottawa last year, according to a new report from the Canada Mortgage and Housing Corporation (CMHC).

Residential construction declined significantly in 2023, with housing starts dropping to 9,245 units, a 19.5 per cent decline from the record high observed in 2022. But while single-detached and row housing starts fell compared to 2022, new construction for rental units and condominiums rose.

“There’s been a shift toward rental construction over the past two years. Rental housing starts made up nearly one third of total starts in 2023, close to double the average of the previous five years,” the report stated.

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Apartment starts reached their highest level since the 1970s.

“The trend toward rental and condominium apartment construction follows increased demand in these market segments due to population growth, households looking for affordable options, and some seniors downsizing to smaller units,” the CMHC said.

Demand from international migration and students, the high cost of home ownership, and people moving to Ottawa from other parts of Ontario were the main drivers for rental housing starts in 2023. The CMHC says rental and condominium apartment starts made up 63 per cent of total starts in 2023, compared to the average of 37 per cent for the period 2018-2022.

There was a modest increase in rental housing starts in 2023 over the record-high seen the year prior and a jump in new condominiums. The report shows 5,846 new apartments were built in Ottawa last year, up 2.1 per cent compared to 2022.

Housing starts in Ottawa by year. (CMHC)

Big demand for condos

The CMHC said condo starts reached a new high in 2023, increasing 3 per cent from 2022 numbers.

“As of the end of 2023, there were only 13 completed and unsold condominium units, highlighting continued demand for new units,” the CMHC said.

Condominum starts increased in areas such as Chinatown, Hintonburg, Vanier and Alta Vista, as well as some suburban areas like Kanata, Stittsville, and western Orléans. Condo apartment construction declined in denser parts of the city like downtown, Lowertown and Centretown, the report says.

Taller buildings are also becoming more common, as the cranes dotting the skyline can attest. The CMHC notes that buildings with more than 20 storeys accounted for nearly 10 per cent of apartment structure starts in 2022 and 2023, compared to an average of 2 per cent over the 2017-2021 period. The number of units per building also rose 7 per cent compared to 2022.

Apartment building heights in Ottawa by year. (CMHC)

Single-detached home construction down significantly

The number of new single-detached homes built in Ottawa last year was the lowest level seen in the city since the mid 1990s, CMHC said.

“The Ottawa area experienced a slowdown in residential construction in 2023, driven by a significant decline in single-detached and row housing starts,” the CMHC said.

Single-detached housing starts were down 45 per cent compared to 2022. Row house starts dropped by 38 per cent compared to 2022, marking a third year of declines in a row.

“Demand for single-detached and row houses also declined in 2023. Higher mortgage rates and home prices have led to a shift in demand toward more affordable rental and condominium units,” the report said.

There were 1,535 single-detached housing starts in Ottawa last year, 208 new semi-detached homes and 1,678 new row houses.

The majority of single-detached and row housing starts were built in suburban communities such as Barrhaven, Stittsville, Kanata, Orléans and rural parts of the city.

“Increased construction costs resulting from higher financing rates and inflation that occurred in 2022 and 2023 contributed to the decline in construction in the region,” the CMHC said. 

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Trump’s media company ticker leads to fleeting windfall for some investors

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A man looks at a screen that displays trading information about shares of Truth Social and Trump Media & Technology Group, outside the Nasdaq Market site in New York City, U.S., March 26.Brendan McDermid/Reuters

Possible confusion over the new stock symbol for former President Donald Trump’s Truth Social (DJT-Q) saw some investor brokerage balances briefly jump by hundreds of thousands of dollars on Tuesday, the first day Trump’s “DJT” ticker traded.

Several people complained on social media about briefly seeing the value of their DJT stock holdings on Charles Schwab platforms inflated to figures more in line with what they would be worth if the shares traded at the level of the Dow Jones Transportation Average.

Some users said they faced a similar issue in pre-market hours on Morgan Stanley’s E*Trade trading platform.

Shares of Trump Media & Technology Group opened Tuesday at $70.90, while the Dow Jones Transportation Average started the session at 15,937.73 points.

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For one trader, the Schwab brokerage balance jumped by more than $1 million due to the error, according to a screen grab shared on social media platform X. Reuters was unable to contact the trader or independently verify the brokerage balance.

“It sure was nice seeing millions in the account, even if it wasn’t real,” another person, going by the username @DanielBenjamin8, who faced the issue in his E*Trade account, posted on X.

Two X users and one on Reddit surmised that the inflated balances were due to the ticker symbol for the company being nearly identical to the index.

A spokeswoman for Charles Schwab said that certain users on some of Schwab’s trading platforms saw their brokerage balances briefly inflated due to a technical issue.

The issue has been resolved and investors are able to trade equities and options on Schwab platforms, she said. Schwab declined to describe the exact cause of the issue.

E*Trade did not immediately respond to a request for comment outside of regular business hours.

Trump Media & Technology Group and S&P Dow Jones Indices, which maintains the Dow Jones Transportation Average Index, did not immediately comment on the issue.

While social media users said the issue appeared to have been resolved, many rued not being able to cash out their supposed gains from the error.

“I better go tell my boss that I’m actually not retiring,” the trader whose account balance had briefly jump by more than $1 million, wrote on X.

Trump Media & Technology Group shares surged more than 36% on Tuesday in their debut on the Nasdaq that comes more than two years since its merger with a blank-check firm was announced.

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