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Why Canada's inflation rate is likely much higher than reported – The Globe and Mail

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Canada’s annual inflation rate hit 4.7 per cent in November, the highest increase since 1991. A prominent voice on Bay Street thinks the actual inflation rate is much higher.

After Wednesday’s inflation report, Derek Holt published a scathing critique of Statistics Canada, the agency that produces the numbers. Mr. Holt, the head of capital market economics at Bank of Nova Scotia, wrote that investors are getting “fake data on what’s really going on with Canadian inflation.”

The true rate? It’s likely around 6 per cent, Mr. Holt said – closing most of the gap with the U.S., where inflation jumped to a near 40-year high of 6.8 per cent.

His argument centres on a key omission in Canada’s report: used cars. Statscan doesn’t track prices for used vehicles, a major source of inflationary pressure over the COVID-19 pandemic.

Few industries have been as affected by supply issues as the auto sector. A global shortage of semi-conductor chips has led to steep production cuts for new vehicles. Subsequently, rental fleets have held onto their vehicles longer, limiting the flow to the used market. And many people want to buy used cars, rather than take public transit during a health crisis.

All of that has conspired to send prices skyward. In November, the price of used cars and trucks in the U.S. surged 31 per cent from a year earlier. The shortage is so bad that some lightly used vehicles are selling for more than when they were purchased new.

The Canadian auto market is similarly strapped for vehicles, but the impact on used-car prices isn’t reflected in the consumer price index, or CPI, the country’s main gauge of inflation. When asked by The Globe and Mail about the omission, Statscan said it lacks sufficiently detailed data.

“This is because the quality characteristics for used vehicles vary greatly, and adjusting for these quality differences requires detailed information on the characteristics and selling prices of used vehicles, which we don’t currently have,” the agency said in a statement.

Mr. Holt said the U.S. and Britain have tracked used-car prices for years, “so frankly that excuse has worn a little thin by now.”

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There are various measures of the domestic market. For instance, an index published by Canadian Black Book shows used-car values jumped 9.5 per cent in November alone and by 38 per cent over the previous year – both records. Using that data source, Mr. Holt estimates annual inflation would jump about 1.3 percentage points, taking the rate to 6 per cent from 4.7 per cent.

“The issue is hugely important at a time of heightened sensitivity toward inflationary pressures,” he said. “Many things hinge upon accurate inflation readings, yet in Canada, markets and main street businesses and consumers are not being well served by this ongoing omission.”

For example, some individuals have their wages and benefits tied to changes in CPI.

“Monetary policy decisions affecting the cost of borrowing are the other obvious example of something that needs accurate inflation gauges,” Mr. Holt added.

Statscan does account for used vehicles when constructing its weighting of goods and services in the CPI. However, it uses new-car prices as a proxy for the used market. In November, the price of such vehicles rose 6.1 per cent over the previous year. In the U.S., those prices jumped 11.1 per cent.

Statscan said it’s evaluating alternative data sources and methods for including used cars in CPI.

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Japan’s SoftBank returns to profit after gains at Vision Fund and other investments

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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.

Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.

Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).

SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.

The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.

WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.

SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.

SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.

SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.

The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.

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Yuri Kageyama is on X:

The Canadian Press. All rights reserved.

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Trump campaign promises unlikely to harm entrepreneurship: Shopify CFO

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Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.

“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.

“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”

Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.

On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.

If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.

These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.

If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.

However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.

He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.

“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.

Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.

The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.

Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.

Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.

Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.

Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.

Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”

In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.

“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:SHOP)

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RioCan cuts nearly 10 per cent staff in efficiency push as condo market slows

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TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.

The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.

The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.

RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.

The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.

RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:REI.UN)

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