Bank of Canada governor Tiff Macklem is sticking with his plan to pause interest rate increases, despite evidence the economy ended the year much stronger than the central bank expected.
Tiff Macklem is sticking with rate-hike pause despite blowout jobs report
The most recent development was Statistics Canada’s estimate of hiring in January. The agency on Feb. 10 said employers added 150,000 workers in January, far more than anyone expected, including the central bank, which had updated its forecasts that month with a prediction that economic growth would effectively stall at the start of the year.
“A robust labour market is a challenge for the Bank of Canada,” Charles St-Arnaud, chief economist at Alberta Central, said in a note on Feb. 10. The central bank “needs to slow growth and create some excess capacity in the economy to fight inflation. This will likely lead to a rise in the unemployment rate and job losses. With this in mind, continued strength and tightness in the labour market may not be a welcomed outcome for the BoC.”
The Bank of Canada’s next policy announcement is March 8. The governor made his conditional pledge to pause interest rate increases on Jan. 25, when it lifted the benchmark rate a quarter-point to 4.5 per cent, extending the most aggressive series of rate hikes in the central bank’s history.
It would take a lot for the governor to back down on such an explicit promise after less than two months. Now that he’s dangled the possibility that interest rates have peaked, reneging so quickly could damage the Bank of Canada’s credibility. Rightly or wrongly, that’s now a variable when policymakers debate what to do with interest rates going forward, and an example of why purists argue that central bankers should never box themselves in by offering explicit forward guidance.
“The recent (Bank of Canada) pause decision is looking more dubious by the day,” Phil Suttle, a former economist at the Bank of England and the New York Fed who now runs his own consulting firm, said in a note to clients this week.
Suttle said market-based expectations of where inflation will be in a year remain elevated in most rich countries, suggesting central banks will have to raise interest rates even higher to snuff out price pressures. Inflation expectations are especially high in Canada, according to his calculations.
What’s more, higher borrowing costs and slower wage growth in January have done little to slow consumer spending, Royal Bank of Canada economist Carrie Freestone said in a Feb. 16 report, citing the bank’s credit-card data. Discretionary spending remained strong through early February, based on the four-week average of daily transactions, and restaurant meals have even increased, she said.
“We know it takes time for higher interest rates to work through the economy to slow demand and reduce inflation,” he said. “That’s why policy needs to be forward-looking. Guided by what we have seen so far and our outlook for economic growth and inflation, we think it time to pause interest rate hikes and assess whether monetary policy is restrictive enough to return inflation to the (two per cent) target.”
But before he explained the rationale for the pause, Macklem made a point of emphasizing the conditional nature of his guidance, giving himself flexibility to resume raising rates in the spring or summer.
“This is a conditional pause,” he said very early in his opening statement to the committee. “It is conditional on economic developments evolving broadly in line with our forecast.”
In other words, don’t be angry if Macklem decides to raise interest rates again. You’ve been warned.
Sharp hike in federal alcohol excise duty will drive up price of booze, Ottawa distilleries and breweries say – Ottawa Citizen
For Ottawa distilleries and breweries, April 1 each year brings, rather than jokes or pranks, increases in the federal excise duty they must pay. This year, the especially steep hike is no laughing matter.
The alcohol excise duties imposed on manufacturers are adjusted annually based on inflation. But while booze businesses have coped in recent years with two-per-cent increases, this year’s duty is set to increase 6.3 per cent as of Saturday.
The result, Ottawa distilleries and breweries say, will be more expensive alcoholic beverages for consumers, including restaurants, bars and the general public, as manufacturers who are still coping with pandemic-induced pressures, are forced to recoup the latest additional expenses.
“It’s pretty much a foregone conclusion that prices across the board have to go up. They have to,” says Marc Plante, a co-owner of Stray Dog Brewing Company in Orléans. “It’s not going to be, ‘Boom! Here comes the increase,’ and everyone’s going to see it. It will be slow. It will be subtle.”
Citing a press secretary for Finance Minister Chrystia Freeland and Canada Revenue Agency figures, the Canadian Press reported that the increased federal excise tax works out to less than a penny on a can of beer and three cents on a 750-mL bottle of wine.
Still, Plante says the beers his micro-brewery makes will be more expensive “eventually,” although he can’t when the hike will happen or how big it will be. Stray Dog, which launched in 2017, has held its prices stable for several years, absorbing increased expenses and even debts incurred during the pandemic, Plante says.
He compares his company’s efforts to cope with COVID-19 to “a death by a thousand cuts.”
“Unfortunately, there’s only so much that small businesses like mine can absorb, and so we have to start passing some of those costs down to the consumers,” he says.
On a litre of wine, the excise duty rate is increasing to $0.731 from $0.688, or a little over four cents, according to figures provided by the Canada Revenue Agency. For a 750 ml bottle of wine, the increase would be closer to three cents.
Plante says he feels sorry for consumers. “The way inflation is right now, consumers are the ones getting the hits the hardest,” he says. Calling beer “one of the few pleasures in life,” and adds: “When you start pricing that out of people’s wallets, what do they have left?”
He adds that he feels worse for distilleries, who face a tougher tax regimen than do breweries and wineries.
“I would never get into that business,” he says.
The Ontario Spirits Tax is 61.5 per cent on the cost of the goods. Given that, Adam Brierley, founder of Ogham Craft Spirits in Kanata, says that if he tries to recoup the extra 25 cents of excise duty per bottle imposed this year, he’ll be taxed provincially for that effort and need to raise his prices again to break even.
“On the surface, we’re talking about 25 cents a bottle, but there are ripple effects,” Brierley says. “It’s just another thing that continues to kick the industry while it’s down.”
The increased excise duty hits distillers even as the costs of bottles, labels, grains, botanicals and more are getting more expensive, driving down profit margins, says Brierley, who launched Ogham in late 2021.
He figures that he will maintain the prices of some of his products until the current batch is sold, and then re-assess. The price of upcoming products will increase, he says, giving the example of Ogham’s maple eau de vie, currently priced at $60 but likely to rise by $5 or more due to the excise hike and the increased cost of maple syrup.
John Criswick, co-founder of Perth-based Top Shelf Distillers, says he intends to hold the line and not raise the price of Top Shelf’s products “for now.”
Still, he faults the increased excise duty for helping to increase liquor prices and, with them, inflation.
Brierley contends that while excise duty increases are pegged to inflation, he would have liked to have seen the federal government freeze the increase at two per cent, as in recent years.
Greg Lipin, a co-founder of North of 7 Distillery on St. Laurent Boulevard, says Canadian craft distillers as a whole want relief from the federal excise regimen, which applies equally to mega-distilleries and to comparatively much smaller operations such as theirs.
In the U.S., there’s one rate for craft distillers and another for bigger players, “which is what we’re looking for,” Lipin says.
During its decade of being in business, North of 7 has not changed its prices, preferring to absorb tax hikes, Lipin says.
“I haven’t entertained raising the prices of my products. But I will at some point, with these increases,” he says.
Rod Castro, the owner of 10Fourteen and Pubblico Eatery, two Wellington Street West restaurants, said the spike in the excise duty should not be surprising, as it follows on recent reports on the negative impact of alcohol and revised recommendations for alcohol consumption.
Still, he says: “As is usual, the government fails to really show they have a care or have a pulse for small- and medium-sized businesses and burden us as they do the consumer.”
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Twitter source code leaked online: legal filing
NEW YORK –
Some parts of Twitter’s source code — the fundamental computer code on which the social network runs — were leaked online, the social media company said in a legal filing on Sunday.
According to the legal document, filed with the U.S. District Court of the Northern District of California, Twitter had asked GitHub, an internet hosting service for software development, to take down the code where it was posted. The platform complied and said the content had been disabled, according to the filing. Twitter also asked the court to identify the alleged infringer or infringers who posted Twitter’s source code on systems operated by GitHub without Twitter’s authorization.
Twitter noted in the filing that the postings infringe copyrights held by Twitter.
The leak creates more challenges for billionaire Elon Musk, who bought Twitter last October for US$44 billion and has had massive layoffs since then.
The news was first reported by the New York Times.
Thousands without power after Ontario windstorm
More than 10,000 customers remain without power in Ontario today after strong winds hit the southern and eastern parts of the province on Saturday.
Hydro One spokeswoman Bianca Teixeira says more than 11,500 customers are without power as of 9:30 a.m.
She says there are more than 300 active outages and utility crews are working to restore power to customers.
The outages stretch from just outside Ottawa to Pembroke, Parry Sound and Kingston and are scattered across the Greater Toronto and Hamilton Area to parts of Niagara and westward to just outside Windsor.
Environment Canada issued wind warnings on Saturday for areas including Kingston, Prince Edward County, Niagara Region, Hamilton, London, Middlesex, Chatham-Kent and Windsor.
The agency said affected areas would experience strong southwesterly winds gusting up to 90 or 100 km/h beginning Saturday evening.
This report by The Canadian Press was first published March 26, 2023.
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