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‘Unsettling news’: What inflation’s uptick means for the Bank of Canada

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An acceleration in the annual rate of inflation to end 2023 won’t be enough to panic the Bank of Canada heading into its first interest rate decision of the year, economists argue, but it won’t hasten the timeline for cuts, either.

Statistics Canada said Tuesday that the annual inflation rate ticked up to 3.4 per cent in December, thanks to gas prices and still sticky price hikes at the grocery store.

That’s up from the November inflation rate of 3.1 per cent.

Economists had widely expected a temporary inflation spike, owed largely to a smaller drop in gasoline prices in December compared with a year ago. Gas prices have declined for the fourth consecutive month, StatCan says.

Prices at the grocery store rose 4.7 per cent annually last month, StatCan says, the same pace seen in November.

Shelter inflation such as climbing rent and mortgage costs continued to drive the cost of living higher in December.

Canadians paid 31.1 per cent more for air transportation in December than in November as the holiday season pushed up demand for airfare, StatCan says. Cheaper prices on travel tours month-to-month helped moderate this pressure.

Higher costs for fuel oil and passenger vehicles were also contributing to inflation last month, the agency says.

With December marking the last month of the year, Statistics Canada says the annual average inflation rate for 2023 was 3.9 per cent, down from a 40-year high of 6.8 per cent in 2022.

The latest inflation print comes a day after the Bank of Canada released its quarterly business outlook survey, which showed fewer firms are planning steep and frequent price hikes in the year to come.

RBC economist Claire Fan says that while business pricing behaviours haven’t fully normalized yet, the Bank of Canada’s surveys suggest inflation should be less intense in 2024.

 

Inflation report will put Bank of Canada in ‘cautious stance’

Tuesday’s report comes about a week ahead of the Bank of Canada’s next interest rate decision set for Jan. 24. The central bank has held its policy rate steady at 5.0 per cent in the past three decisions, and has warned that rates might need to rise higher to fully bring inflation back to its two per cent target even as many forecasters start to pencil in rate cuts later this year.

While the uptick in headline inflation might have been expected, there were signs of acceleration in the central bank’s closely watched metrics of core inflation, too.

BMO chief economist Doug Porter said in a note to clients Tuesday that core inflation holding around mid-three per cent range will be “unsettling news” for the Bank of Canada, proving that the so-called “last mile” of the inflation fight will be the hardest.

With wage growth still elevated and signs that the housing market might be waking up from its hibernation, Porter argued that the central bank will have to hold a “cautious stance” in next week’s decision. He reiterated BMO’s call for interest rate cuts to begin in June.

TD Bank economist Leslie Preston also said the December inflation report will pour water on calls for an easing in the Bank of Canada’s policy rate.

“If you are looking for data to signal a rate cut is imminent, this isn’t it,” she wrote in a note.

TD Bank nonetheless has a more aggressive timeline for easing to begin, expecting the first cut in April. Preston said she expects inflation and the wider economy will have slowed enough to give the Bank of Canada confidence that inflation is heading back to two per cent to start easing monetary policy by then.

Fan says she expects the inflation release on its own won’t be “too concerning” for the central bank heading into next week’s rate decision.

Signs of deterioration elsewhere in the economy and a softening in the labour market give RBC the confidence that the sticky core inflation metrics will eventually begin to ease; the question remaining is how long that will take, she says.

“That, in a way, just really warrants this slow approach. The Bank is in no rush to cut rates,” she says.

Fan expects the Bank of Canada will hold its policy rate steady on Jan. 24 and keep the same posture it had at the end of 2023, keeping hints for rate cuts off the table until it’s seen more inflation prints in 2024 and another round of business surveys.

RBC expects the Bank of Canada will pivot to rate cuts around mid-year. Fan notes that risks of an inflationary stall pushing back the timeline for rate cuts and risks of a steeper economic downturn moving forward the schedule for easing are “pretty evenly distributed” at this juncture.

Possible stalls in the Bank of Canada’s inflation fight come as the economy continues to show signs of slowing.

Andrew DiCapua, senior economist at the Canadian Chamber of Commerce, tells Global News that the central bank will have a tough job trying to avoid tilting the economy into a recession while ensuring it tamps inflation all the way back down to two per cent – the coveted “soft landing” scenario.

He also says that the Bank of Canada, while it operates independently, will feel pressure to keep its policy rate moves close to those of the United States Federal Reserve. The exchange rate of the Canadian and U.S. dollars are closely tied to the country’s central bank rates, and too much of a divergence here could fuel inflation on trade between the nations, he notes.

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While inflation in the U.S. has also clocked in at 3.4 per cent in its latest reading, DiCapua says the Fed likely has a bit more bandwidth to work with in its own inflation fight because the economy south of the border is still running strong. That gives the Fed more “leeway” to run its interest rates higher for longer to tame inflation without tanking the economy, he says.

“I think the United States is definitely more in the soft landing camp, whereas Canada is really growing at about zero per cent, and we could dip into recession in the second half of this year,” DiCapua says.

Officials at the U.S. Fed have recently signalled that there could be as many as three interest rate cuts from that central bank in 2024. Wall Street investors and many economists expect the first cut in March.

However, the Bank of Canada diverged from the tone taken by the Fed last month.

“The Fed is going to do what they need to do. We’re going to focus on what needs to be done here in Canada,” Governor Tiff Macklem told a business audience in Toronto after a speech in December.

“We have not started having that discussion (about cutting rates), because it’s too early to have that discussion. We’re still discussing whether we raised interest rates enough and how long they need to stay where they are.”

A top Federal Reserve official said Tuesday that he is increasingly confident that inflation will continue falling this year back to the Fed’s two per cent target level.

The official, Christopher Waller, an influential member of the Fed’s Board of Governors, noted that inflation is slowing even as growth and hiring remain solid — a combination that he called “almost as good as it gets.”

“The progress I have noted on inflation, combined with the data in hand on economic and financial conditions and my outlook has made me more confident than I have been since 2021 that inflation is on a path to per cent,” Waller said in written remarks to the Brookings Institution.

Waller meanwhile cautioned that the Fed might not cut rates as urgently as many on Wall Street have envisioned. He noted that the economy is continuing to expand, with the unemployment rate at just 3.7%, not far above a half-century low, while inflation cools.

“But will it last?” he asked.

Fed officials, he added, will want to see further evidence that inflation is still on track to two per cent before embarking on rate cuts.

“We can take our time to make sure we do this right,” he said.

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Faith leaders call on Ford to reverse move to shutter supervised consumption sites

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TORONTO – Faith leaders are calling on Ontario Premier Doug Ford to reverse course on his decision to close 10 supervised consumption sites across the province.

A number of religious organizations came to Queen’s Park on Tuesday and said they were hopeful they could reach Ford’s “humanity.”

Last month, Health Minister Sylvia Jones outlined a fundamental shift in the province’s approach to the overdose crisis, largely driven by opioids such as fentanyl.

Ontario will shutter the 10 sites because they’re too close to schools and daycares, and the government will prohibit any new ones from opening as it moves to an abstinence-based treatment model.

Health workers, advocates and users of the sites have warned of a spike in deaths when the sites close, which is slated for March 31, 2025.

Until then, the faith leaders say they plan to pressure Ford for change.

“I’m hoping that, perhaps, if facts and figures and science and data have all failed, perhaps we have a chance to reach his humanity, perhaps we have an opportunity to try once again to convince him that we are talking about human beings who will die,” said Rev. Maggie Helwig of the Church of St. Stephen-in-the-Fields.

The faith organizations all work closely, in one form or another, with those addicted to drugs. The sites slated for closure have said they have reversed thousands of overdoses over the past few years.

“We believe that those who are visiting the sites are the folks who have the least resources, the highest need and the least access to privacy and care,” said Bishop Andrew Asbil of the Anglican Diocese of Toronto.

“We believe that the sites are in the right place, which means that they are often in places of deprivation and desolation and sometimes that also includes high crime rates.”

Rabbi Aaron Flanzraich of Beth Sholom Synagogue said the province’s decision should not be ideological.

“This is not an issue of where you stand,” he said.

“It’s an issue of where you sit, because if there are people in your family who you sit with at a table who suffer from this blight, from this struggle, you know that most importantly there should be a clear and supportive policy that makes it understandable that people are seen as human beings.”

Opioids began to take a hold in Ontario in 2015 with the rise of illicit fentanyl. Opioid toxicity deaths surged during the COVID-19 pandemic and hit a peak mortality rate of 19.3 deaths per 100,000 people in 2021, data from the Office of the Chief Coroner shows. That year 2,858 people died from opioids, the vast majority of which contained fentanyl.

The mortality rate dropped to 17.5 deaths per 100,000 people, or 2,593 people, last year, but remains more than 50 per cent higher than in 2019.

The Ford government introduced the consumption and treatment services model in 2018. At that time, the province put in place a cap of 21 such sites in the province, but has only funded 17.

Ford recently called his government’s approach a “failed policy.”

The province said it will launch 19 new “homelessness and addiction recovery treatment hubs” plus 375 highly supportive housing units at a cost of $378 million.

Jones has said no one will die as a result of the closures and Ford has said advocates should be grateful for the new model.

The government is not going to reverse course, Jones’s office said.

“Communities, parents, and families across Ontario have made it clear that the presence of drug consumption sites near schools and daycares is leading to serious safety problems,” Hannah Jensen, a spokeswoman for Jones, wrote in a statement Tuesday.

“We agree. That’s why our government is taking action to keep communities safe, while supporting the recovery of those struggling with opioid addiction.”

The health minister is encouraging existing sites to apply for the new model so long as they do away with both supervised consumption spaces and a needle exchange program.

This report by The Canadian Press was first published Sept. 17, 2024.



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B.C. ‘fell so short’ in Doukhobor pay, communication after apology: ombudsperson

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VICTORIA – British Columbia’s ombudsperson has a list of criticisms for the province over the way it has treated Doukhobor survivors months after the premier apologized for the government’s removal of the children from their families in the 1950s.

A statement from Jay Chalke says the government is being vague about who is eligible for promised compensation, and its communication is so inconsistent and unclear that survivors are coming to his office for help.

Hundreds of children whose parents were members of the Sons of Freedom Doukhobor religious group were taken from their homes more than 70 years ago and sent to live in a former tuberculosis sanatorium in New Denver, B.C.

Chalke’s statement says given Eby’s “solemn apology” in the legislature, he’s surprised the province’s follow-up communication fell so short.

He says the government has confirmed that each survivor unjustly taken to New Denver will get $18,000 in compensation, which he says is inadequate as nearly two-thirds of the $10-million “recognition package” is going to other purposes.

The province announced in February that the money would also be used for community programs and education to provide “lasting recognition of historical wrongs” against members of the religious group and their families.

Chalke says the situation is further complicated because the government hasn’t provided clear information to survivors or descendants about any financial consequences of receiving the compensation.

Many of the survivors are living on a fixed income and Chalke says the province needs to make sure that accepting the money doesn’t have negative financial impacts on means-tested programs.

“This is important to ensure that the compensation is not clawed back, for example, through reduced seniors benefits or increased long-term care fees,” his statement says.

“I call on government to develop and share with the community its plan for contacting all survivors and descendants, providing timely, accurate information about government’s compensation program and responding to their questions.”

Chalke says he will be closely monitoring the next steps the government takes and he will continue to report on the situation publicly.

This report by The Canadian Press was first published Sept. 17, 2024.

The Canadian Press. All rights reserved.



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“We have not hit the bottom yet:” Jasper council asks province for budget funding

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The town of Jasper, Alta., is asking the provincial government for budgetary financial support for the next few years to avoid drastically cutting services or implementing significant tax hikes while the community rebuilds.

The request comes as Jasper, which saw an estimated $283 million worth of property value destroyed by a devastating wildfire in July, begins to grapple with how it will manage severely reduced property tax revenue in the years to come.

“We have not hit the bottom yet,” Jasper Mayor Richard Ireland said during Tuesday’s town council meeting. “Our tax base is going to get even lower before it starts to recover.”

Town administration estimates the wildfire wiped out well over $2 million in rolling annual property tax revenue for the municipality, not including additional revenue the town would have continued to receive in future years in utility fees charged to the 358 homes and businesses that are no longer standing.

Council also approved Tuesday a property tax relief proposal for residents affected by the July wildfire.

Under the tax relief proposal, which is subject to the provincial government stepping up with financial assistance, all property owners would be given a one-month tax break for the time when a mandatory evacuation order was in place.

Property owners whose homes or businesses were destroyed would have their remaining or outstanding 2024 bill nullified, or refunded if the full year’s tax bill was already paid.

Ireland noted that four members of council, including himself, would be covered under this relief for having lost their homes.

The relief includes municipal property taxes, as well as the provincial education requisition, which would need to be refunded by the Alberta government.

The proposal means Jasper would forgo more than $1.9 million in municipal property tax revenue this year, or close to 10 per cent of its 2024 budget.

Jasper’s chief administrative officer Bill Given told council the town estimates it will miss out on an additional $1.7 million in 2024 from reduced paid parking, public transit, and utility fee revenue.

Heather Jenkins, the press secretary for Alberta Municipal Affairs Minister Ric McIver, said the ministry will consider the town’s request once received.

Given said Tuesday the town’s request is not unprecedented, as the province has previously provided Slave Lake, Alta., and the Regional Municipality of Wood Buffalo, Alta., with similar financial support after wildfires struck both communities in 2011 and 2016 respectively.

Without support from the province, Jasper could be faced with raising taxes on the properties that remain to make up for the lost revenue or cut services until the town’s tax base recovers when homes and businesses are rebuilt.

An administrative report presented to council says the first option would “cause significant strain” on residents, while cutting services “would likely both prolong the community’s recovery and damage the destination’s reputation with visitors.”

Ireland said Jasper would face “insurmountable challenges” if it doesn’t receive financial support from the province.

“We are not seeking a grant or a subsidy from the province,” Ireland argued. “I see this as an investment by the province in our tourism economy.”

“We contribute disproportionately to provincial (gross domestic product) recognized through tourism, so yes… the province can see this as an investment in its own future by supporting our tourism-based community.”

Tuesday also marked the first day of school for Jasper’s elementary, junior high, and high school students. Classes were delayed to start the year as both schools in the community suffered significant smoke damage.

The community’s transit service also resumed Tuesday.

This report by The Canadian Press was first published Sept. 17, 2024.

The Canadian Press. All rights reserved.



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