The wording of the Bank of Canada’s new mandate has changed but the substance of it remains essentially the same, several economists say.
Canadians can expect the country’s central bank to continue to aim for low, stable and predictable inflation. And when it comes to the impact of low interest rates on the housing market, it will be up to the government — not monetary policy — to get a handle on runaway home prices.
In a joint press conference on Monday, Finance Minister Chrystia Freeland and Bank of Canada governor Tiff Macklem announced the details of the new five-year mandate, the compass that will guide the central bank’s monetary policy decisions until the end of 2026. While the Bank of Canada makes monetary policy decisions independently, every five years the federal government gets a say in the overall framework under which the bank operates.
According to the new mandate, the “primary objective” of the Bank of Canada will continue to be to pursue an inflation target of two per cent, as it has done since 1991.
The new framework also instructs the central bank to put new emphasis on the labour market when weighing how its policy options. But the new twist won’t change much in practice, according to economists interviewed by Global News.
That’s because the new mandate stops short of making full employment a second target for the Bank of Canada as it is for U.S. Federal Reserve. Economists define full employment as an ideal labour market in which everyone who wants to work can find a job.
“This is really a repackaging of the existing mandate for the Bank of Canada in a new candy wrapper,” says Avery Shenfeld, chief economist at CIBC.
The Bank of Canada’s approach to the housing market, where prices are affected by the cost of borrowing, will also remain the same, according to the documents backing the decision.
6:46 No short-term solutions to rising cost of living: former Bank of Canada governor
No short-term solutions to rising cost of living: former Bank of Canada governor
Canada already aiming for full employment, economist says
Aiming for full employment was already “inherent” to the central bank’s approach to policymaking, Shenfeld adds.
And the new mandate stops short of defining what full employment is, says Chris Ragan, director of the Max Bell School of Public Policy at McGill’s University.
Ragan, along with other economists commenting on the new mandate on Twitter, expressed relief over the decision not to formally add full employment as a second target for the central bank.
“People like me who think the central bank shouldn’t have a dual mandate argue that the central bank already cares about things like employment and unemployment and the output gap and real GDP growth,” he says.
“But the only thing (the Bank of Canada) can really influence in a sustained way is inflation,” he adds. “So set the target up as inflation.”
To manage inflation, the Bank of Canada adjusts its trend-setting interest rate, which affects the general level of interest rates in the economy. When interest rates go up, it becomes more expensive for individuals and businesses to borrow, which usually cools off economic activity and slows down inflation. Lowering interest rates, on the other hand, tends to stimulate economic activity and put upward pressure on inflation.
The central bank may, in certain instances, have to hold its key interest rate “at a low level for longer than usual,” according to the documents.
But the way the Bank of Canada was targeting inflation — at two per cent within a range of one and three per cent — was already explicitly flexible, Shenfeld notes.
“They weren’t trying to steer inflation every minute of the day to two per cent, but rather get the economy to a fully employed position where we could have, on average, two per cent inflation,” he adds.
The mandate renewal documents also mention the Bank of Canada “systematically” reporting to Canadians about how labour market impacts factor into its monetary policy decisions.
That likely means the Bank of Canada governor will have to spend more time talking about how variables like employment, unemployment and vacancy rates influenced its thinking when making their appearance on Parliament Hill, Ragan says.
“I think that’s actually a good thing,” he says. “The more the bank can communicate … the underlying logic of its policy actions to the Canadian people (the better).”
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Canada’s inflation rate soars to 4.7% in October – Nov 20, 2021
What about the housing market?
If the brainstorming behind the new mandate led to a new emphasis on the job market, it did not include new thinking on the housing market.
Canada has seen a record spike in home price appreciation during the pandemic, with the national average home prices up 18 per cent in October compared with the same month in 2020, according to data from the Canada Real Estate Association (CREA).
Persistently low interest rates contribute to a hot housing market by making it cheap to carry a mortgage, which also drives up household debt levels.
“A prolonged period of low interest rates could contribute to a buildup of financial vulnerabilities,” reads the 74-page report that backs the Bank of Canada’s new mandate.
The value of Canada’s household debt now exceeds that of the country’s GDP, and its relative size has doubled since 1990, according to the document.
Still, government policies are “better suited” than monetary policy to addressing those vulnerabilities, the document reads.
“There are some problems created by (having) very low interest rates for long and rising house prices is one of them,” Ragan says. “But there are also benefits created from those low interest rates, which is to support that demand.”
“We haven’t figured out how to solve rising house prices,” he adds, “but I would be the first to argue that it’s not really monetary policy problem to do that.”
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.
