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Inflation is high, pervasive and frequently felt. That's a dangerous mix – The Globe and Mail

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Shoppers buying groceries at the Urban Fresh Produce stand at Toronto’s St. Lawrence Market on May 18.Fred Lum/The Globe and Mail

Two months ago, Jackie Chen caused a stir in Carbonear, a town of about 5,000 in Newfoundland: He announced that Don’s Restaurant wasn’t bringing back its buffet.

At $16.99 before tax, the buffet was a popular draw in town – one that residents were eagerly awaiting the return of, owing to provincial COVID-19 restrictions that forbid buffets for two years. During much of that time, Mr. Chen, the owner of Don’s, which specializes in Chinese cuisine, had seen his food costs increase rapidly and without letting up.

So when the final rules on restaurants were lifted in March, Mr. Chen made the tough decision to keep the buffet closed. The math no longer made sense.

“If we were to open the buffet, we’d have to raise the price almost double or possibly even triple,” said Mr. Chen, who recently hiked most of his menu prices by $2 a dish.

Consumer sentiment in Canada posts biggest drop since pandemic onset amid inflation

Canada’s inflation rate hits new 31-year high in April as grocery prices soar

The situation at Don’s is just one example of how life is changing in this era of high inflation. Similar stories can be found anywhere in the country. Once a fringe topic, inflation is now a dominant theme of discussion – on AM radio, in the grocery aisle and over the bargaining table.

That’s a noted departure. For decades, consumer prices have grown at generally low and stable rates in Canada, along with other advanced economies. If policy makers complained of anything, it was often that inflation was too low.

Not any more. In April, the annual rate of inflation hit 6.8 per cent, the highest since 1991. Many economists say that, because of the recent surge in gas prices, inflation could climb above 7 per cent soon, which would be the highest in nearly four decades. The last time it was that high, another Trudeau was prime minister and Duran Duran topped the Canadian charts.

The trouble is not only that inflation is high, but that it’s pervasive. About 70 per cent of the products and services that make up the Consumer Price Index (CPI) – the country’s main gauge of inflation – are rising by more than 3 per cent annually, making it tougher to avoid rising prices. Moreover, the reminders of steep inflation are relentless, particularly at gas stations and supermarkets, venues of frequent purchases.

Those descriptions of inflation – high, pervasive and frequent – are a dangerous mix for the economy, and particularly for the Bank of Canada. Central bankers are trying to raise interest rates enough to quell inflation, but without sending the economy into a painful downturn. It is, however, a tough feat to pull off.

“Historically, soft landings have been very hard to engineer,” Michael Weber, an associate professor at the University of Chicago’s Booth School of Business, said in an interview. “I think it’s actually very unlikely that we’ll see inflation decreasing to a target rate of around 2 per cent without having a recession. I think it’s almost impossible.”

Even without a recession, people are making adjustments to their lives.

Rebecca Bradley of Victoria spends around $200 to fill up her Dodge Durango, which she uses to make food deliveries for a delivery app. The exorbitant cost of gasoline – locally, it’s jumped to around $2.30 a litre for regular unleaded – eats into her take-home pay. “It’s almost like you’re hardly even making a wage,” she said.

A mother of three, Ms. Bradley is mindful of wasting money. She makes sure to freeze leftovers or fruit that’s ripened. And for dinner, it’s usually a home-cooked meal. “We rarely get takeout any more. We just can’t afford it,” she said.

Over in Prince Edward Island, inflation is running especially high. The province’s CPI grew 8.9 per cent in April from a year earlier, well clear of New Brunswick, the next highest province at 7.6 per cent.

Susan Marie, a photographer on the island, used to buy specific treats for her dog for $6.99. Now they cost $12.99. (“I’m gonna buy them because she loves them, she’s a senior [and] she deserves it.”) And because of steeper gas prices, Ms. Marie is making fewer trips to the beach, a 25-minute drive from her place in Charlottetown.

“I lived in Calgary for nine years, and I was used to paying city prices,” she said. “We’re paying more now” on the island, “for our gas, for our food, for our living expenses.”

Those two items – gasoline and groceries – weigh heavily on consumer psychology. Many people buy them frequently, which filters into their expectations of future inflation, according to a vast body of economic studies. Consumers also tend to notice price hikes more than cuts.

Lately, they’ve had plenty to notice. Grocery prices jumped by nearly 10 per cent in April, the largest annual increase since 1981. And this week, the average price of regular unleaded gasoline surpassed $2 a litre for the first time.

Inflation expectations are important. Workers negotiate wages and businesses set prices, respectively, based on their views of future costs. In that sense, inflation can be self-fulfilling.

Based on its surveys of consumers and businesses, the Bank of Canada has found that inflation expectations for the next two years are elevated, but remain “well anchored” over a five-year window. That could change.

“Unfortunately, with grain and energy prices pushing higher, we likely haven’t seen peak food inflation yet,” said Benjamin Reitzes, a rates strategist at Bank of Montreal, in a recent note to clients. “Combined with the surge in gasoline prices, there’s a real risk that inflation expectations become unanchored.”

In that scenario, the Bank of Canada would have to raise interest rates aggressively – perhaps above 3 per cent – to bring expectations back to earth. (Its policy rate is currently at 1 per cent, and financial analysts widely expect the rate to hit 1.5 per cent on June 1.)

The collateral damage could be significant for lower-income households, which have fewer savings – if any – and spend a greater proportion of their income on debt payments.

Neil Hetherington, the chief executive officer of the Daily Bread Food Bank in Toronto, can already see the strain.

In March of 2019, the food bank had roughly 60,000 client visits. This past March, visits had soared to 160,000. The numbers are “absolutely dismal,” said Mr. Hetherington, who attributes the surge partly to rising inflation.

In turn, that’s driving up the cost of operations. Prior to the pandemic, the annual food budget for Daily Bread was around $1.5-million. Mr. Hetherington estimates that food costs will hit $10-million in the coming fiscal year.

“It’s just not getting better, despite the economy opening up,” he said.

Ron Kneebone and Margarita Wilkins, researchers at the University of Calgary’s School of Public Policy, have studied some of the factors that influence visits to food banks, focusing specifically on Daily Bread and social conditions in Toronto. In a recently published paper, they found that food-bank visits rose with increases in rent, and with reductions in the minimum wage and disability benefits, after accounting for inflation.

On those fronts, current circumstances are challenging. Rents have jumped 4.5 per cent over the past year, with larger increases in Ontario (5.3 per cent) and British Columbia (6.4 per cent). Average wages aren’t climbing at the same pace as inflation, leaving millions of workers with a decrease in purchasing power. And lacklustre benefits via social-assistance programs have emerged this spring as an election issue in Ontario.

“We know that there is, essentially, a tidal wave of various factors that are all resulting in these extraordinary numbers coming to food banks,” Mr. Hetherington said.

How this all shakes out is tough to predict. Royce Mendes, head of macro strategy at Desjardins Securities, suspects the interest-rate hikes will cool demand and that global inflationary pressures will settle down.

However, “the conviction that I have in that base case is not very high,” he added.

The risks are twofold, Mr. Mendes said. On one hand, it’s possible that inflation stays high if people continue to spend heavily, particularly those households that accumulated vast savings during the pandemic. That would force central banks to raise rates aggressively. On the other hand, it’s possible that the inflationary surge is hurting people and companies so much that, even without many more rate hikes, the economy takes a dive into recession.

“Every day, there is new conflicting data,” Mr. Mendes said. “We don’t know – and we probably won’t know for another few months – which direction the economy is headed down.”

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Air Canada Cutting Back Summer Flights to Deal with High Airport Traffic – VOCM

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Air Canada is cutting schedules through July and August in order to reduce passenger volume in light of a series of flight delays, cancellations and general chaos in the airline industry.

Reports indicate that more than half of flights at some Canadian airports have been cancelled or delayed. While the phenomenon is being experienced throughout North America, some of the worse scenarios have played out at Toronto Pearson. The situation is so bad, federal Transport Minister Omar Alghabra has called the baggage chaos experienced at Canada’s busiest airport “unacceptable.”

President and Chief Executive Officer of Air Canada, Michael Rousseau says the surge in travel has created unprecedented and unforeseen strains on all aspects of the global aviation system.

Recurring flight delays are being experienced around the world, says Rousseau, resulting in airport congestion and a “complex array” of persistent factors affecting airlines and their partners. Rousseau says the result has been flight cancellations and customer service shortfalls for which they “sincerely apologize.”

He says the schedule reductions through the busy summer months are intended to help reduce traffic volumes even though they will result in further flight cancellations affecting travellers.

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Stock market news lives updates: Stocks fall, S&P 500 heads for worst first half in 52 years – Yahoo Canada Finance

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US stocks dipped on Thursday, with the major averages on track to post steep declines for the month of June and first half of 2022 as concerns over heightened inflation and the prospects of a recession weighed on risk assets.

The S&P 500 fell by about 0.2% as of 12:48 p.m. ET, coming off session lows when the index was down as much as 2.1%. The Dow dropped about 100 points, or 0.3%, and the Nasdaq declined by about 0.4%.

Stocks held lower in early trading after a new report showed core personal consumption expenditures — the Federal Reserve’s preferred inflation gauge — decelerated slightly more than expected in May. This metric rose by 4.7% over last year compared to the 4.8% increase anticipated, according to Bloomberg data. Headline inflation, which includes energy and food price changes, also rose slightly less than expected, or at a 6.3% annual rate to match April’s pace. However, separate data showed real personal spending fell by a larger-than-expected 0.4% in May after a rise of 0.7% in April, suggesting consumers were pulling back on some spending with inflation at current levels.

The risk-off mood in equities extended to other asset classes including oil. West Texas intermediate crude futures fell back below $110 per barrel, and bitcoin prices sank to just over $19,000.

Thursday’s price action extended a streak of declines for US equities. These have been hit hard for months now as investors have weighed persistently hot inflation against risks of an economic downturn, as the Federal Reserve responds to inflation with faster tightening. Federal Reserve Chair Jerome Powell this week reaffirmed that the central bank’s main goal is bringing down inflation running at its fastest rate in over 40 years, suggesting that this aim will take priority over fully preserving activity elsewhere in the economy.

NEW YORK, NEW YORK - JUNE 23:  Traders work on the floor of the New York Stock Exchange during morning trading on June 23, 2022 in New York City. Stocks opened on a positive note this morning after ending lower yesterday ahead of today's testimony by Federal Reserve Chairman Jerome Powell before a House panel to discuss the state of inflation in the United States. (Photo by Michael M. Santiago/Getty Images)NEW YORK, NEW YORK - JUNE 23:  Traders work on the floor of the New York Stock Exchange during morning trading on June 23, 2022 in New York City. Stocks opened on a positive note this morning after ending lower yesterday ahead of today's testimony by Federal Reserve Chairman Jerome Powell before a House panel to discuss the state of inflation in the United States. (Photo by Michael M. Santiago/Getty Images)

NEW YORK, NEW YORK – JUNE 23: Traders work on the floor of the New York Stock Exchange during morning trading on June 23, 2022 in New York City. (Photo by Michael M. Santiago/Getty Images)

“Is there a risk we would go too far? Certainly there’s a risk,” Powell said at the European Central Bank’s annual economic policy roundtable conference in Portugal on Wednesday. “The bigger mistake to make — let’s put it that way — would be to fail to restore price stability.”

Powell earlier in June suggested either a 50 or 75 basis point interest rate hike would most likely be on the table following the Fed’s July meeting. And in the weeks since, a number of other key central bank officials have affirmed that the latter will probably be the most appropriate option, with inflation and consumer inflation expectations each remaining elevated.

Amid the myriad concerns facing markets as of late, stocks are on track to close out the worst first half of a year in decades. Based on Wednesday’s closing prices, the S&P 500 is set to post a 19.9% decline for the first six months of the year — its worst performance since 1970. For the month of June alone, the index is on track to slide by 7.6%.

All 11 major sectors in the index are heading toward monthly losses, with the cyclical energy, materials and financials sectors among the worst performers as fears over a recession have resurged. That leadership also reversed what was seen earlier this year, when energy stocks and outperformed amid oil and other energy commodities’ march higher. The more defensive health-care, consumer staples and utilities sectors outperformed in June.

Both the Dow and Nasdaq Composite also headed for marked monthly and year-to-date losses. As of Thursday’s close, the Dow had fallen 14.6% for the first half of the year, and the Nasdaq shed nearly 29%.

On the move

  • Bed Bath & Beyond (BBBY) shares extended losses after a more than 23% decline in the stock on Wednesday. The retailer reported same-store sales that sank more than 20% in the most recent quarter, and also announced CEO Mark Tritton would be leaving the company and the board, effective immediately, and that board member Sue Gove would take over on an interim basis.

  • RH (RH) shares tumbled after the furniture company slashed its full-year outlook to forecast a revenue decline, citing “the deteriorating macro-economic environment” and lower-than-expected demand. RH now sees revenue falling between 2% and 5% this year, versus a prior outlook for sales to come in flat to up 2%.

  • Constellation Brands (STZ) turned lower even after the beverage company posted first-quarter results that exceeded estimates on most major metrics. Comparable earnings per share came in at $2.66 versus the $2.50 expected, according to Bloomberg data, and beer net sales of $1.9 billion were $160 million better than expected.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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Do unions at Starbucks mean the labour movement is picking up steam? – CBC News

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With seven years of experience as a barista, Sarah Broad knows how to make all kinds of coffee. 

Now the Starbucks worker also knows what it feels like to be a union member and the face of a growing campaign by the United Steelworkers (USW) to unionize Starbucks stores in Canada.

“I never realized how passionate I would feel about the labour movement,” said Broad in an interview from her basement apartment in Victoria, B.C.

Broad, a shift supervisor at a Victoria location, helped organize her store in August 2020, the only one in Canada at the time. She’s one of a number of service industry and retail workers in North America joining the labour movement since the start of the pandemic. 

The surge in interest has some labour leaders and experts wondering if this moment could mark a turning point for unions who have seen declining numbers in the sector for years. 

In addition to efforts to unionize Amazon warehouses, in the U.S there are efforts to bring unions into Apple stores and Trader Joe’s. In Canada there’s been a successful campaign to organize a handful of Indigo locations and a PetSmart store

A recent poll in the U.S. showed 68 per cent of Americans approved of labour unions, the highest number since 1965.

“I think this could be a watershed movement for Canadian and U.S. unions,” said Nicole Denier, an assistant professor at the University of Alberta in Edmonton who studies unions. 

“We’ll see over the next year whether or not the momentum will continue to build.” 

WATCH | Workers trying to unionize hundreds of Starbucks stores:

Unionizing efforts come to Starbucks, food service workers

16 hours ago

Duration 2:00

Starbucks is the latest major food service company to see unionizing efforts spread across Canada recently.

Baristas battle iconic brand   

Starbucks is facing a wave of union drives.

An online tracker and map based on numbers from the U.S. National Labour Relations Board (NLRB) shows about 300 Starbucks shops in the U.S have filed to unionize in just six months,  including the flagship roastery in the company’s hometown of Seattle.  According to the tracker, run by a non-profit media organization that focuses on labour stories, more than half have been certified.

In Surrey, B.C., a second Canadian Starbucks just unionized and a half dozen stores in Alberta are trying to do the same, including five in Lethbridge

Broad says health and safety issues related to the pandemic, abusive customers and the high cost of living In Victoria made her and her coworkers seek union representation to make their working conditions better and improve their wages.

While the process was “a little intimidating,” she said that getting workers onboard in her store didn’t take long because most were “super gung-ho.” 

It took a little over a month to get the store’s union certified under B.C. law, but took almost a year to negotiate a collective agreement with Starbucks Canada. 

For USW it will be expensive to organize and support many small locations one at a time compared to organizing large factories, lumber mills or offices. But the small bargaining units are not the only challenge in organizing the service and retail sectors.

“The major issue is turnover in employees. It’s a younger, transient workforce,” said Mike Duhra, a USW representative for Western Canada.   

Another factor, says Duhra, is that unions are so rare in the sector that some workers just aren’t familiar with them or don’t recognize how they can help. 

Mike Duhra, a USW representative for Western Canada, says companies like Starbucks are hard to organize because of employee turnover is high and there are many locations, but the union is looking to expand in sectors like food service and retail. (James Dunne/CBC)

Starbucks pushback

Another factor is Starbucks’s opposition to unions. Acclaimed past CEO Howard Schultz recently returned to the company’s helm, and he’s been vocal about his opposition to unions for years. 

Company executives have visited stores to discourage workers from unionizing in the U.S., and workers claim one location was shut down earlier this month because it recently unionized.

Starbucks announced company-wide enhanced benefits and wage increases in May, but they’re not being offered to workers in unionized stores in the U.S. or Canada.   

A spokesperson for Starbucks Canada told CBC News the company believes it is better without a union, but it continues to “respect our partners’ right to organize.” 

In addition, wage increases are not being offered to the unionized location in Victoria because it has “its own collective agreement, including its own unique wage increase schedule.” 

Broad believes the unionized stores aren’t getting a raise because “they’re just trying to make us look bad and retaliate against us for unionizing.”

Economic conditions primed for union growth

Mikal Skuterud, an economist at the University of Waterloo, says the current tight labour market and high inflation both favour union growth.

“Unionization rates are procyclical,” says Skuterud, “so when the economy goes into a boom, unionization rates tend to go up.” 

According to the NLRB, applications to start unions in U.S. workplaces are up 57 per cent this year compared to the first six months of 2021. 

Equivalent data about union organizing in Canada is not available but Bea Bruske, the president of the Canadian Labour Congress said “we are seeing growing momentum in Canada towards unionization, especially amongst young workers.” 

While there’s movement at big companies, young workers also organized unions at a video game maker and a liquor store.

Workers from an Indigo location in Mississauga, Ont., rally in September 2020 before their successful vote to join the United Food and Commercial Workers. (UFCW Local 106A)

Even so, Skuterud says unions in the private sector in Canada could desperately use a boost. 

“Unionization rates, particularly in the private sector, are the lowest they’ve ever been.” 

USW’s Duhra says unions are indeed looking to move into new sectors for growth. 

“We have to find new members … and this is a perfect industry where people need a union,” he said, adding that workers at Starbucks came to USW for help.

Will the momentum last?

Lawyer and professor Kenneth Thornicroft from the University of Victoria is skeptical that Starbucks will become a highly unionized company.   

“Unless a union is able to get pretty deep penetration across the store network,” he said, Starbucks “can just wait them out,” and as members get tired of paying dues, stores will decertify.

Thornicroft points out that’s exactly how it played out when a handful of BC stores unionized in the 1990’s.

He believes unions might have a better opportunity for growth in the banking and financial services sector than in food service.

But Denier thinks the retail and food sectors are ripe for unionization because both industries have long been under-unionized. 

In her view, workers aren’t just committed to getting better wages “but to having a voice in the workplace.”

She adds that workers are also focused on making companies that market themselves as progressive accountable for their public image.

For her part, the new union activist Sarah Broad is eagerly serving up advice and support to  potential barista brothers and sisters trying to organize other stores.

“I’m so excited that they’re wanting to join and it’s going to be challenging,” she said, “but it’s so worth it.”

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