From Washington to Frankfurt to London and beyond, central bankers are approaching their final decisions of the year against a backdrop of unease at how the global inflation cycle is turning.
Policymakers from fully half of the Group of 10 jurisdictions of most-traded currencies are scheduled to meet in the coming days, and interest rates for 60 per cent of the world economy will be set in a whirlwind 60-hour window.
With the exception of Norway, which may conceivably raise borrowing costs, most monetary officials are confronting financial-market pressure to explain why they seem unhurried about pivoting to monetary easing.
Synchronized weakening in inflation data and some evidence of softening economies have prompted investors to ramp up bets on rate cuts in the first half of 2024. That’s a view that could clash with the mantra the Fed and its peers expounded little more than three months ago, of “higher for longer.”
In Latin America, which led the push upwards with rate hikes, most central banks are already on the way down, and Brazil and Peru may both cut in the coming week.
Their peers in the U.S. and Europe aren’t so sure. After starting the year with renewed vigour to aggressively ramp up borrowing costs, they’re ending 2023 with more hesitation — setting the scene for what could become a prolonged standoff with investors.
The Fed is widely expected to keep its benchmark rate at the highest level in two decades as policymakers assess the lagged impact of their aggressive series of hikes since early 2022.
As central bankers gather Tuesday to begin two days of deliberations, they’ll have fresh inflation data in hand. The core consumer price index is seen reinforcing expectations that chair Jerome Powell, at his press conference the following day, will acknowledge both the progress made on inflation as well as the risks of stubborn price pressures.
The core CPI for November, which excludes food and fuel for a better snapshot of underlying inflation, is projected to climb 0.3 per cent from a month earlier, when it rose 0.2 per cent. Compared with a year ago, forecasters see a four per cent advance that indicates that inflation is abating only gradually.
Nonetheless, there are indications demand across the economy is cooling as the year draws to a close. November retail sales data on Thursday are expected to reveal consumers are becoming more guarded.
At the end of the week, industrial production figures are seen showing a partial rebound in factory output as striking auto workers returned to assembly lines.
President Christine Lagarde will probably try to temper market expectations that are pricing in a quarter-point European Central Bank rate cut in April.
While the euro zone could well be in a recession, and policymakers acknowledge that the labour market is showing signs of turning, they aren’t fully convinced that the danger to consumer prices has passed, and want to see more wage data.
Executive board member Isabel Schnabel has called the inflation slowdown so far “remarkable,” and said that further rate hikes are now unlikely. But she hasn’t pivoted much further. One colleague, Peter Kazimir of Slovakia, termed expectations for a rate cut in the first quarter of 2024 “science fiction.”
The Bank of England is expected to keep rates on hold for a third straight meeting and deliver a warning that the fight against inflation is far from over.
With the U.K. economy facing stagnation at best next year, investors are betting that the Monetary Policy Committee will start cutting borrowing costs – now at a 15-year high of 5.25 per cent — in June.
However, officials are likely to repeat their guidance that policy needs to remain restrictive for an “extended” period to stop inflation from sticking above their two per cent target amid a still-tight labor market and price pressures in the services sector. The BOE announces its decision at noon on Thursday.
Swiss inflation is even weaker than in the neighbouring euro zone — in fact, it has now declined to well below the two per cent ceiling targeted by policymakers.
Speculation that they won’t cut rates as quickly as the ECB has pushed the franc to its highest level since the Swiss National Bank abandoned its cap on the currency nine years ago.
Norges Bank faces a tough choice on whether to go ahead with a final quarter-point rate hike. Recent data could encourage officials to brush off potentially inflationary krone weakness and stay on hold as the economy cools.
Stagnation is anticipated for the current quarter before a contraction at the start of 2024, as businesses encounter more spare capacity and fewer hiring problems, a key sentiment survey by the central bank showed this week.
Meanwhile, building activity is falling sharply and retail activity is slowing, even as Norway’s fossil-fuel sector cushions some of the fallout from stubbornly high inflation and rising credit costs. The Norges Bank decision comes Thursday.
After raising its key rate by 200 basis points in October, the Bank of Russia will likely need to hike by another percentage point to 16 per cent on Friday as policymakers strive to bring inflation back to their four per cent target, according to Bloomberg Economics Russia economist Alexander Isakov.
True to repeated signalling, Brazil’s central bank, led by Roberto Campos Neto, can be expected to deliver a fourth-straight half-point rate cut on Wednesday, to 11.75 per cent.
A cooling economy and inflation that’s slowed back to within the central bank’s target range is widely expected to keep Banco Central do Brasil on that pace through the first quarter of 2024.
At that point, the board may slow the pace of rate reductions — depending on the global backdrop and state of local long-term inflation expectations, which remain above target across the entire forecast horizon.
In Mexico, where Banxico typically doesn’t go in for dovish surprises, expect a unanimous decision on Thursday to keep the key rate at a record 11.25 per cent for a sixth straight meeting.
Looking ahead, slowing core inflation and a cooling services component now have governor Victoria Rodriguez saying that the rate-cut discussion could begin in early 2024. The consensus among analysts is for an easing cycle to begin in the first quarter.
Also on Thursday, Banco Central de Reserva del Perú’s December meeting finds the economy in recession and riding consecutive months of deflation, possibly making a case for a 50 basis-point reduction after three straight quarter-point cuts.
Still, upside risks to inflation from El Niño-related disruptions and ongoing political turmoil will likely see veteran bank chief Julio Velarde stay the course and lower the key rate to 6.75 per cent from seven per cent.
— with assistance from Robert Jameson, Vince Golle, Ott Ummelas, Tony Halpin, Lizzy Burden, Andrew Atkinson, Anna Edwards and Bastian Benrath.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Press. All rights reserved.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
The Canadian Press. All rights reserved.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
The Canadian Press. All rights reserved.
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