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Why central banks hope you think prices are rising: Don Pittis – CBC.ca

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Do you feel as if the things you buy every day are getting more expensive?

If you live in North America or Europe, your local central bankers might be pleased to hear that. And it’s not because they want you to suffer.

Instead they hope that if you expect inflation when the latest numbers come out next Wednesday, that’s what’s going to happen.

This week, Canadians get a fresh perspective on where inflation is heading through a brand new set of data coming from the Bank of Canada later today. And while most of us dislike rising prices, odds are economists at the European Central Bank and the U.S. Federal Reserve will be very jealous of Canada’s numbers.

At the end of last week, the vice-chair of the Fed, economist Richard Clarida, warned that the U.S. central bank would have to keep struggling against what he called “global disinflationary pressures.”

What did you expect?

While the central bankers’ fear of falling prices seems to be abating, many, like Clarida, worry that a slowing rate of price growth — where prices rise, but well below the two per cent inflation target — will gradually take the world back to its nemesis, deflation.

At its last interest rate announcement, the Fed said it would keep interest rates on hold in 2020 after a series of cuts. But the Fed vice-chair then hinted last week that more cuts might be needed.

“The global disinflationary pressures which I referred to are very powerful forces and policy needs to factor that in in setting policy to get inflation up to the objective,” said Clarida.

Boxing Day shoppers in Ottawa, looking for deals. Rising inflation allows central banks to increase interest rates, creating the ability to cut in the case of a downturn. (Patrick Doyle/Canadian Press)

Most economists used to imagine inflation in a relatively simple, mechanical way: Based on the idea of the Phillips curve, strong employment leads to higher inflation, and cutting interest rates makes prices rise.

But now there are increasing doubts about those relationships.

Instead, much more weight is given to inflation expectations. In other words, if you and all your friends think prices won’t rise, they won’t.

It is a strange and circular argument, but research partly financed by the Bank of Canada has shown it has a basis in fact.

New data on consumer views

Unbeknownst to most Canadians, the central bank has been collecting data on our inflation expectations since 2014. It will publish some of that information later today in its first Canadian Survey of Consumer Expectations.

The data — based on consumer interviews with a rotating cast of 1,000 heads of households — probes not just what inflation will be at the next release, but consumer expectations for the months and years ahead.

“Since expected inflation influences current wage negotiations, price setting and financial contracting for investment, it is one of the main drivers of current inflation,” reads a 2015 report explaining how the survey works.

But as Bank of Canada governor Stephen Poloz explained last week, adjusting those expectations once they have become deeply rooted in consumer thought is not necessarily easy.

“You make a forecast of inflation one to two years from now and ask where that’s going to be relative to your target,” said Poloz, outlining how the bank tried to bend expectations, and thus the eventual rate of inflation.

People might not like rising prices, but central banks are convinced it is better than the opposite. (Graeme Roy/The Canadian Press)

But, as he explained, that depends where the current rate is relative to the target, and whether the economy is strong or if it is weak, needing stimulus. 

In Canada, inflation expectations likely currently sit slightly above the bank’s two per cent target rate (though we will find out today), and the central bank is in a relatively happy position.

Theoretically, if needed, the bank should be able to nudge those long-term expectations up or down by nudging interest rates lower or higher respectively.

That is not so easy in other places, such as parts of Europe, where even low and negative interest rates have failed to push prices up in any substantial way.

There are things that could trigger inflation expectations, such as a sudden economic boom in some part of the world, or, as we saw last week, the threat of war that would cause emergency spending and perhaps shortages of raw materials, if oilfields were cut off, for example.

But far more worrying for central bankers in countries where both inflation expectations and interest rates are low is what they will do if a new recession that many worry may still be around the corner were to make an appearance.

Whereas Canada would still have room to cut and stimulate the economy with lower interest rates, others would once again face the distorting effects of other forms of stimulation, from negative interest rates to bond buying, which have proved less successful in practise than many economic theorists had hoped. 


Follow Don on Twitter @don_pittis

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

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Canada Post to launch chequing and savings account with Koho

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Two years after the failed launch of a lending program, Canada Post is making another foray into banking services.

The postal service confirmed Friday that it will be offering a chequing and savings account in partnership with Koho Financial Inc.

The accounts will be launched nationally next year, though Canada Post employees will be offered early access as the product is tested.

Canada Post spokeswoman Lisa Liu said in a statement that there are gaps in the banking and savings products available that the Crown corporation looks to fill.

“Canada Post is uniquely positioned to fill some of these demands. Many of our existing financial products help meet the needs of new Canadians and those living in rural, remote and Indigenous communities, but we believe more is required.”

The MyMoney offering will be a spending and savings account where customers will be able to choose between features like high interest rates, cashback rewards and credit-building tools.

A document briefly posted to the Canadian Union of Postal Workers website said it would use a prepaid, reloadable Mastercard that will use money from the account like a debit card but offer the features of a Mastercard.

It said there will be a range of account tiers, including no-fee accounts and paid accounts with more features.

The plans comes after Canada Post launched a lending program with TD Bank Group in late 2022, only to shut it down weeks later because of what it said were processing issues.

Liu said the postal service has since been exploring other possible financial service offerings.

“Utilizing what we’ve learned, we are making a strategic shift from loans toward products more aligned with our core financial service products.”

The new account will be delivered with financial technology company Koho. A few months ago the company paired with Canada Post to allow its customers to deposit cash into their account through post offices.

Koho is also working to secure a Canadian banking license to expand its services.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.



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N.S. Progressive Conservative election platform includes cap on electricity rates

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HALIFAX – Nova Scotia’s incumbent Progressive Conservatives released their election platform today, which includes a promise to cap electricity rate increases so that they don’t exceed the national average.

The Tory platform also promises to reduce the small business tax rate to 1.5 per cent from 2.5 per cent, and to increase the tax threshold to $700,000 from $500,000.

The majority of the other promises in the platform have already been announced, either during the campaign or before Tory Leader Tim Houston called the election to seek a second term in office.

Those promises include cutting the provincial portion of the harmonized sales tax by one percentage point and increasing the basic personal exemption on the provincial income tax to $11,744 from $8, 744.

Houston has also promised to boost the minimum wage to $16.50 in 2025 if re-elected Nov. 26.

The Tories are the second of the three major parties to release a platform this week after the Liberals presented a plan containing $2.3 billion in election promises over four years.

Liberal Leader Zach Churchill made an announcement today in Halifax where he highlighted several measures contained in the party platform that are aimed at improving women’s health.

Churchill said that while women make up 50 per cent of the population, only about eight per cent of medical research is focused on their bodies. To make up that gap the Liberals would require that 50 per cent of all provincial research grant funding be used to study women’s health.

Churchill said the Liberals would also create a minister of women’s health to ensure that a “gender lens” is applied to the delivery of health care.

NDP Leader Claudia Chender was in Cape Breton, where she promised to boost provincial equalization payments to the Cape Breton Regional Municipality.

Chender says the New Democrats would double the municipal finance grant to $30 million in their first year of government.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.



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