History taught the Bank of Canada what happens when it doesn't control high inflation - CP24 Toronto's Breaking News | Canada News Media
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History taught the Bank of Canada what happens when it doesn't control high inflation – CP24 Toronto's Breaking News

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Nojoud Al Mallees, The Canadian Press


Published Thursday, July 21, 2022 5:42AM EDT


Last Updated Thursday, July 21, 2022 5:42AM EDT

Canadians are seeing the cost of borrowing rise rapidly as the Bank of Canada takes historic action to slow the soaring of prices, having learned costly lessons from history when central banks let inflation run rampant.

The Bank of Canada recently raised its key interest rate by a full percentage point — the largest single rate hike in more than two decades — as it tries to cool domestic demand and bring down inflation expectations.

An unusual move for an unusual time: inflation reached a 39-year-high of 8.1 per cent in June, after years of a low, stable and predictable consumer price index in Canada.

But throughout much of the 20th century, price stability wasn’t a given in the Canadian economy.

TD chief economist Beata Caranci said inflation today might feel especially challenging because Canadians have been shielded from inflation volatility for decades.

“We haven’t had this challenge in a while,” Caranci said.

Canada’s last experience with high inflation came in two waves during the 1970s and 80s and hit a peak of 12.9 per cent in 1981.

In 1973, adverse weather sparked a global food shortage and an embargo on OPEC oil drove energy prices up. Several years later, a second energy crisis was brought on by the Iranian Revolution in 1979.

And while the drivers of high inflation are relatively similar — global circumstances pushing up food and energy prices — inflation today isn’t expected to climb as high or be as persistent. 

That’s because the approach of central banks is now markedly different, said Western University economics professor Stephen Williamson. 

“A big difference now is sort of a strongly held notion that it’s mostly the job of the Bank of Canada to look after inflation control,” said Williamson. “In the 70s, that wasn’t true.” 

For the bulk of the 20th century, central banks had not yet developed strong and effective mandates to maintain a stable reading of inflation, Williamson said. Instead, they tried to control inflation through the money supply.

Economists at the time believed inflation could be managed by controlling the amount of money circulating in the economy. However, central banks found this tactic to be unsuccessful.

Caranci said another reason why the Bank of Canada was slow to raise rates was that central banks were historically hesitant to hinder economic growth through higher interest rates.

TD senior economist James Orlando wrote an analysis in April that compared high inflation today to the 1970s and 80s. He said the Bank of Canada was slow to raise interest rates in the 1970s, and by the time the bank acted, it was too late. 

“Inflation expectations adjusted upwards, resulting in even higher inflation over the subsequent years,” said Orlando.

Interest rates in the 1980s eventually rose to as high as 21 per cent.

In 1982, the Bank of Canada announced it would no longer target the money supply and instead would turn its focus to interest rates.

Canada’s turbulent experience with high inflation also led to the Bank of Canada’s mandate to maintain a target inflation rate. In 1991, the Bank of Canada and the minister of finance agreed on an inflation-controlled framework to guide monetary policy.

“We believe the Bank of Canada has learned from history,” Orlando wrote in his comparison of inflation in the two eras.

This time around, Canada’s central bank is still facing criticism for taking too long before starting to raise its key interest rate. By comparison, though, the Bank of Canada has acted faster and more forcefully.

“We’re hearing different dialogue coming out of the central bank today that there is a willingness to sacrifice growth, and to even have the unemployment rate rise,” said Caranci. 

In its latest rate announcement on July 13, which surprised economists who were expecting a three-quarters of a percentage point hike, the central bank’s message was clear: it’s not afraid to move aggressively to clamp down on skyrocketing inflation.

At the same time, economists like David MacDonald from the Canadian Centre for Policy Alternatives have used history to warn raising rates too quickly can trigger a recession, as it did in the 80s.

However, Caranci said there are important differences between the two time periods, including a different makeup of the economy and the existence of safeguards such as mortgage stress tests.

“The challenge with doing comparisons of periods, especially when you get that far back in history is, there’s been so many differences at play,” said Caranci.

In May, Bank of Canada deputy governor Toni Gravelle delivered a speech that focused on why comparisons between stagflation in the 1970s and the current inflation environment were “unjustified,” citing strong economic growth, a tight labour market and historically low unemployment.

And of special importance, Gravelle said today’s Bank of Canada is equipped with the policy tools it needs to rein in inflation.

“Since the 1990s, we and other central banks around the world have had success with inflation targeting,” he said. “And we are committed to bringing inflation back to target.”

This report by The Canadian Press was first published July 21, 2022.

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

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

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

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

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

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

Companies in this story: (TSX:BCE)

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