Inflation ticked up in December — economists weigh in on what this means to the Bank of Canada and interest rates
Inflation accelerated to 3.4 per cent in December and an unexpected rise in the Bank of Canada’s preferred measures could complicate its decision on when to make the first cut to interest rates, economists say.
December’s headline inflation was faster than November’s rate of 3.1 per cent, Statistics Canada said Jan. 16, but the increase was mainly attributed to base effects from a plunge in gas prices in 2022.
“The much more worrying development is that the CPI-trim and CPI-median core measures both rose by a larger 0.4 per cent month over month,” said Stephen Brown, deputy chief North America economist with Capital Economics.
There are other signs inflation could be “stickier” than Canada’s central bank would like.
For example, the share of components tracked in the consumer price index that increased by more than three per cent rose to 52 per cent in December from 49 per cent in November, said Charles St-Arnaud, chief economist with Alberta Central. Items that rose by more than five per cent also increased.
“We believe it remains too early for the Bank of Canada to officially declare victory on inflation,” St-Arnaud said.
Looking past the data, Sebastien Lavoie, chief economist at Laurentian Bank of Canada, believes that the ongoing attacks on container ships in the Red Sea are increasing “the risk of a second inflation wave,” citing a surge in global shipping and container rates.
“The main implication would be the maintenance of current Bank of Canada and Federal Reserve policy rates well into the second half of 2024, if not until 2025,” Lavoie said.
The central bank makes its next rate decision on Jan. 24. Here’s what economists say policymakers might take from the inflation data.
“As mentioned in our 2024 economic outlook, key thresholds to embark on a prudent monetary easing path include hitting 2.5 per cent to 2.7 per cent total CPI inflation and seeing compelling evidence that core inflation measures are on a steady downward path and lower than three per cent. In our view, the Red Sea crisis, and disappointing results from the 2023 Q4 Bank of Canada (business and consumer outlook) surveys should contribute to stifling market expectations of Bank of Canada and United States Federal Reserve policy rate cuts during the first half of the year.”
“With this in mind, inflationary fears are less and less on our radar for 2024.”
“The increase in headline inflation, the relatively unchanged core inflation and the rise in core inflation’s momentum will provide reasons for the BoC to remain cautious on inflation. As such, we believe it remains too early for the BoC to officially declare victory on inflation. Looking ahead, the BoC is unlikely to contemplate rate cuts until inflation has been brought sustainably below three per cent. This is unlikely to happen until the spring and could be delayed if inflation proves to be stickier than expected.”
“The Bank of Canada’s preferred core measures, CPI-trim and CPI-median failed to fall, with trim accelerating by two ticks to 3.7 per cent and median remaining at 3.6 per cent (from an upwardly revised prior month reading that was previously 3.4 per cent). Those measures also accelerated in three-month and six-month annualized change terms, measures that the Bank of Canada will need to see more progress in before considering rate cuts.”
“Although the rise in headline inflation in December was mainly due to gasoline price base effects, the much more worrying development is that the CPI-trim and CPI-median core measures both rose by a larger 0.4 per cent month over month. The pick-up in underlying inflation pressures raises the risk that the Bank of Canada will need to keep interest rates higher for longer than markets are now pricing in, with the economy suffering further as a result.
“As the bank pays more attention to those core measures (CPI-trim and median) than the CPI excluding food and energy, those larger increases mean the bank is likely to maintain a hawkish tone at its meeting next week and reduce the chance of it cutting interest rates any time soon.”
“While the higher headline was little surprise, and precisely mimicked the U.S. inflation experience in December, the slightly more unsettling news is the persistence of core in the mid-3s. That sticky theme was echoed in yesterday’s BOS (Business Outlook Survey), and suggests that the last mile (or kilometre) of the inflation fight may prove to be the most challenging — bringing underlying inflation sustainably back below three per cent. Given that wage trends are also stuck in the four per cent to five per cent range, and now even housing may be showing a pulse, suggests that the Bank of Canada will doggedly maintain a cautious stance at next week’s rate decision and MPR (Monetary Policy Report). We are comfortable with our call of a first rate cut at the June meeting, even as the market leans in earlier.”
“December’s consumer price index (CPI) report shows just how challenging it is to conquer the last mile in the path toward price stability.
“The Bank of Canada will hold the policy rate at five per cent next week. That said, the Bank should begin slashing interest rates as early as April. Given that the economy has slowed to a crawl and that inflation at this point is mostly driven by shelter, keeping the rates higher for longer will not help. Shelter inflation occurs due to two factors: high rent growth due to the housing shortage and rising mortgage interest payments. The Bank of Canada cannot fix the former: housing shortage is a structural problem that will take many years to address. The latter, high mortgage interest payments, is directly caused by monetary policy.
“If you are looking for data to signal a rate cut is imminent, this isn’t it. December’s inflation report underscores that the last mile of getting inflation all the way back to two per cent is the hardest. It took about a year for inflation to drop from its peak of eight per cent to around three per cent, but over the past six months further headway has been halting. This leaves the Bank of Canada cautious as it considers when it will be appropriate to cut interest rates.
“Despite December’s report, we expect inflation, and the economy, will have cooled sufficiently by the spring for the Bank of Canada (BoC) to make its first interest rate cut in April. That said, inflation is unlikely to be quite at two per cent. As governor (Tiff) Macklem pointed out in December, the BoC doesn’t need to see two per cent to begin normalizing monetary policy, but rather be confident it is getting there.”
“Today’s CPI report was more mixed than the headline reading would suggest.”
“We continue to expect the BoC to tread cautiously and watch the data carefully for further slowing (of) inflation to allow a pivot to interest rate cuts around mid-year.”
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.
Companies in this story: (TSX:T)
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.
Companies in this story: (TSX:TRP)
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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)
The Canadian Press. All rights reserved.
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