Inflation in the UK has shot from below 1% earlier this year to 3.2% in August, the highest in 10 years, with core inflation – excluding food and energy – hitting 3.1%. OK, there was some “base effect” due to the very low inflation rate a year earlier. But the current spike of inflation, as measured by the last six-month average inflation annualized, is already at 4.5%, unrelated to the base effect. An annual inflation rate of 4.5% would be the highest in decades. In September, the Bank of England hiked its forecast for annual inflation by the end of the year to over 4%.
While this is still lower than the red-hot inflation in the US, it is way above the Bank of England’s target of 2.0%.
And the BoE is getting worried that the underlying trends are persistent, instead of temporary, that they’re getting embedded in the economy, and that they will be hard to dislodge through monetary policy once they’re embedded, and it’s making rate-hike noises a lot sooner than expected.
“Unfortunately, if you look at our last forecast, it [inflation] is going to go higher, I am afraid,” Andrew Bailey, Governor of the BoE and Chair of the BoE’s Monetary Policy Committee, told the Yorkshire Post in an interview. “As the Bank of England governor, I would prefer it not be there. But we are in very unusual times, and what I would say is we have to manage our way through these times,” he said.
“Obviously I am concerned with inflation above target,” he said. “We are going to have a very delicate and challenging job on our hands, so we have got to, in a sense, prevent the thing becoming permanently embedded because that would obviously be very damaging.”
A huge amount of focus was currently being directed to bring inflation under control, he said.
With the pandemic having altered consumer behavior, the economy had a “whole range of challenges that we are just going to have to deal with,” he said.
“We have got some very big and unwanted price changes,” he said
“This has been an almost unprecedented set of events. They are not over yet, that we are learning. We have to manage our way through them, and we will do that,” he said.
Pricing in the energy market indicated that inflation would be higher next year, as a price cap on consumers’ energy tariffs set by the regulator is expected to rise again next year.
“A huge amount can happen between now and then, so I am not going to speculate,” Bailey said, “but at the moment the forward curve would suggest that it would be higher, so that would suggest inflation persistence.
“So transience would be longer,” he said.
Financial markets are now pricing in the first rate hike later this year, after the BoE, in its last meeting, raised the possibility that it could raise rates as early as November.
Michael Saunders, a member of the BoE’s Monetary Policy Committee, told the Telegraph, “I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously.”
He’s concerned that capacity pressures and higher growth in wages are driving an increase in inflation that “could become more persistent unless monetary policy responds,” he said.
Huw Pill, the BoE’s new chief economist, said last week, the “balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long-lasting than originally anticipated.”
If the BoE raises its policy rate this year, far earlier than was expected just a couple of months ago, it would follow in the footsteps of smaller central banks in Europe and elsewhere that have already raised their rates, some of them already multiple times:
Bank of Korea: 1 hike, by 25 basis points
Czech National Bank: 3 hikes, by a total of 125 basis points
National Bank of Poland: 1 hike, by 40 basis points
Central Bank of Iceland: 3 hikes, by a total 75 basis points
Norges Bank (Norway): 1 hike, by 25 basis points
Reserve Bank of New Zealand: by 25 basis points.
This has all come a lot faster than expected this spring. And there are increasingly vocal concerns – such as by the BoE governors, but also among Fed governors and many others – that the notion of this inflation surge being “transitory” or “temporary” may not play out in reality.
There are vocal concerns that the underlying tendencies are an indication that this is going to be much more persistent, and is in the process of getting embedded in the economy, amid altered consumer behavior documented by their willingness and ability to pay whatever amid enormous fiscal and monetary stimulus. And tightening – or rather the removal of monetary stimulus, as central bankers will emphasize – is coming faster than previously expected. One of the biggest money printers, the Bank of Japan, has already stopped printing money
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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.
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.
