A sale sign on a rack of clothes at a store in Chicago on June 10.Nam Y. Huh/The Associated Press
Inflation in the United States cooled in June for a third straight month, a sign that the worst price spike in four decades is steadily fading and may soon usher in interest rate cuts by the Federal Reserve.
In a better-than-expected report, consumer prices declined 0.1% from May to June after having remained flat the previous month, the Labor Department said Thursday. It was the first monthly decline in overall inflation since May 2020, when the economy was paralyzed by the pandemic.
And measured from one year earlier, prices were up 3% in June, cooler than the 3.3% annual rate in May.
The latest inflation readings will likely help convince the Fed’s policy-makers that inflation is returning to their 2% target. A brief pickup in inflation early this year had caused the officials to scale back their expectations for interest rate cuts. The policy-makers said they would need to see several months of mild price increases to feel confident enough to cut their key rate from its 23-year high.
The June figures will qualify as another instalment of the more good inflation data the central bank has been seeking. Should inflation remain low through the summer, most economists expect the Fed to begin cutting its benchmark rate in September.
“This confirms that there is very little chance of inflation re-accelerating and that it’s time for some rate cuts from the Fed,” said Luke Tilley, chief economist at Wilmington Trust, a wealth management firm.
Tilley noted that measures of rent and home ownership costs cooled significantly last month, a long-awaited development. Rental prices typically don’t change much from month to month, he noted, which means that the slower price increases in June will probably continue.
Also on Thursday, Mary Daly, a key Fed official, suggested that the central bank should cut rates soon. Daly, president of the Fed’s San Francisco branch, said she believed that slowing inflation and a cooling job market justify a reduction in interest rates. She did not address the specific timing of any rate cut.
“I see it as likely that some policy adjustments will be warranted,” Daly said on a conference call with reporters.
Even as inflation slows, the costs of food, rent, health care and other necessities remain much higher than they were before the pandemic – a source of public discontent and a potential threat to President Joe Biden’s re-election bid.
In June, gas prices plunged for a second straight month, tumbling 3.8% on average nationwide from May. Gas prices are now down 2.5% from a year ago. (They did pick up this month and averaged $3.54 nationwide Thursday, according to AAA, up 10 cents from a month earlier.)
Grocery prices ticked up by a slight 0.1% last month, the first increase in five months, and are just 1.1% higher than a year ago. Food prices are still up, on average, 21% from March 2021, when inflation started to surge, although Americans’ average wages have also risen sharply since then.
Excluding volatile food and energy costs, so-called core prices climbed just 0.1% from May to June, below the 0.2% increase in the previous month. Measured from 12 months earlier, core prices rose 3.3% in June, down from 3.4% May. Core prices are thought to provide a particularly telling signal of where inflation is likely headed.
The cost of new and used cars also fell last month. Used car prices, which had soared during the recovery from the pandemic, have dropped 10.1% in the past year.
Rental and home ownership costs, which make up more than one-third of the entire consumer price index, rose at a slower pace last month, up 0.3% from May to June. That is the mildest such increase in nearly three years, and it could signal that a long-awaited slowdown in rental price increases has finally arrived. Compared with a year earlier, rents in June were still up 5.1%, a much faster rate than before the pandemic.
Rental costs are typically among the last inflationary dominoes to drop, which is why economists are encouraged by the smaller rise in June. A jump in apartment construction in the past two years has brought many new units online, forcing some landlords to keep rents in check to attract renters. (The government also uses rental data to calculate the costs of home ownership, which grew more slowly last month after years of rapid acceleration.)
Most other major drivers of inflation over the past three years – groceries, used cars, gas – have either levelled off or declined. Rental price increases had remained persistently high until June.
“This is a really, really good sign that the (price) weakness that we’ve been expecting for a year and a half is finally starting to occur,” said Alan Detmeister, an economist at UBS Investment Bank. The pullback in housing costs, he said, “will make (Fed officials) feel that the slowing in inflation is a little more sustainable.”
Still, a jump in her rent at the start of this year delivered a painful blow to Deborah Stettler’s finances. Stettler, a 51-year old resident of Quincy, Massachusetts, said her rent soared in January from $1,500 a month to $2,000.
A single mother with a 16-year old son, Stettler is also still struggling with the sharp run-up in food prices over the past three years. She gets about half her family’s food from a local food pantry. For the rest, she looks for sales at grocery stores.
Stettler landed a new job about nine months ago, in children’s services, after having worked before then at a YMCA branch.
“Rent has gone up, food has gone up, the pay doesn’t go up,” she said. “I’m still going to the food pantry for food help, because by the time you pay all your bills, you don’t really have a lot of money left for food.”
Many consumers have cut back on their grocery spending, seeking deals and cheaper alternatives to name brands. On Thursday, PepsiCo acknowledged that its sales volume fell 4% in North America in the April-June quarter after it had aggressively raised prices for two years.
“For particular consumers, we need some new entry price points and probably some new promotional mechanics that don’t expect the consumer to invest so much cash in the purchase of a salty snack,” said CEO Ramon Laguarta.
The Fed has kept its key interest rate unchanged for nearly a year after having aggressively raised it in 2022 and 2023, leading to costlier mortgages, auto loans, credit cards and other forms of consumer and business borrowing.
Inflation is now far below its peak of 9.1% in mid-2022. Other measures suggest that the economy is healthy, though slowing: Unemployment is still relatively low, hiring remains steady and many consumers continue to travel, eat out and spend on entertainment.
In the second half of 2023, core inflation cooled steadily, raising expectations that the Fed would cut its key rate up to six times this year. But then fast-rising costs for auto insurance, apartment rents and other services kept inflation elevated in the first three months of this year, leading Fed officials to downgrade their forecasts for rate cuts in 2024 from three to just one. Wall Street traders expect two rate cuts this year, with the first one coming in September.
In testimony Tuesday to Congress, Fed Chair Jerome Powell noted that the job market has “cooled considerably” and is “not a source of broad inflationary pressures.” That marked a notable shift from his past comments, which had suggested that rapid wage growth could perpetuate inflation because some companies would likely raise their prices to offset their higher labour costs.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
