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Will prices eventually fall in Canada? Why experts say deflation is unlikely

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What goes up doesn’t necessarily come down.

That’s contrary to the sentiment of a surprisingly large proportion of respondents to the Bank of Canada’s quarterly consumer expectations survey, released last week.

According to the survey, more than a quarter of Canadians believe that current decades-high prices will drop five years from now.

“What goes up must come down,” said one respondent in a post-survey interview.

The sentiment likely raised eyebrows at the central bank.

The chance of deflation in five years is “extremely unlikely,” said Laval University economics professor Stephen Gordon.

Though some prices will come down, as has been the case with gasoline prices, Gordon said higher prices for goods feed into each other through the supply chain and become baked into the economy.

“It starts getting embedded into people’s expectations and it becomes a self-fulfilling prophecy,” he said.

Meanwhile, the Bank of Canada said confusion between deflation (falling prices) and disinflation (slowing price growth) wasn’t the reason the figure was so high, noting that its survey respondents understood the difference.

The central bank regularly monitors inflation expectations in the economy to make sure it has control over price growth. With inflation running well above its two per cent target, inflation expectations have been a top concern for the Bank of Canada.

If people and firms expect inflation to remain high in the future, that expectation can lead to businesses setting prices higher and workers asking for higher wages.

Normally, people expect deflation when the economy isn’t doing well. However, the Bank of Canada pointed out that respondents who said they are anticipating deflation were less likely than other Canadians to expect a recession in the next twelve months.

Instead, these respondents were more likely to believe that inflation was caused by supply chain disruptions. Once these temporary pressures on inflation fade, many of them believe prices that rose rapidly would then decline.

Although TD director of economics James Orlando agrees that deflation is unlikely on the horizon, he said there is logic behind what these respondents are thinking.

“As supply chains ease, and they’re easing very quickly right now, we’re going to start getting more and more discounting,” Orlando said.

Consumer price index data shows prices for some goods have already been falling in recent months.

The prices of durable goods for example, which includes products like furniture, fell between November and December.

However, that doesn’t mean the economy will experience broad-based deflation, Orlando said.

“The reason why we don’t think total inflation is going to be sustained in a negative territory … is because you got to consider that the economy isn’t just goods, but it’s also services,” he said.

Prices for services are driven by wages, he said, which are unlikely to fall given their sticky nature.

Though deflation may sound like good news on face value, Gordon said it isn’t something anyone should be wishing for.

“Business would have to be in really bad condition for firms to be cutting their prices. And if they’re in that situation, they’re probably cutting workers,” he said.

Similarly to high inflation, deflation would also set alarm bells off at the central bank. Orlando said Canada’s economic system expects there to be some inflation and has that built into expectations. It’s

If prices were to begin falling, that would force the Bank of Canada to jump in and stabilize prices.

For now, the central bank’s worries are far-removed from fears of deflation.

Canada’s annual inflation rate was 6.3 per cent in December, a noticeable improvement from the month prior but still too high for the Bank of Canada’s comfort.

Though some Canadians appear to believe prices will repair themselves, the Bank of Canada isn’t counting on it as it gears up for one more — and potentially final — interest rate increase on Wednesday.

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Jasper wildfire evacuees find relief after slow drive through smoke, ash and heat

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GRAND PRAIRIE, ALBERTA – Addison McNeill had just put her bags down after moving to Jasper from Edmonton for her new job as a line cook when she got an alert on her phone that she needed to leave immediately.

“I moved there two hours before the evacuation notice,” said the 24-year-old in an interview outside an evacuation centre in Grand Prairie, Alta.

“I was at that point very reliant on this new job to maintain my stability. But now, I don’t really know what’s going to come next.”

McNeill was among the thousands of residents, tourists, campers, and boaters who were ordered to pack their essentials in an hour and leave the largest national park in the Canadian Rockies on Monday night as wildfires moved toward the community and cut off all but one road leading out.

McNeill said she picked up the three packed bags she came with to Jasper again and went to go to a nearby hotel, one of the two meet-up points she was directed to. That’s where she hopped in an RV with others in town who didn’t have a way to leave.

It took about three hours for McNeill and 4,700 residents of the Jasper townsite to exit the area.

“Every single person in town was beelining to one exit from about six different routes and so you get bottleneck, backups and congestion.”

McNeill said as she sat inside the RV, she felt so close to the wildfires that the windows seemed like they were going to shatter from the pressure of the red, hot, smoky air.

She said as darkness loomed over the town and ash swirled in the air, she felt calm seeing acts of kindness such as neighbours loaning their extra cars to those who didn’t have one and people knocking on doors to see if everyone inside was OK.

“It was far from a panic. It was really actually nice to see given what could have been a very strong state of commotion.”

Katie Ellsworth, an incident commander with Parks Canada, told a media briefing Tuesday evening that an estimated 20,000 to 25,000 people, including residents and visitors, fled from Jasper.

“The evacuation of the townsite is complete, and the evacuation of hikers in the backcountry is ongoing,” she said.

Evacuees were initially ordered to go to British Columbia but were directed on Tuesday to make a wide U-turn as that province was dealing with its own wildfires, proceeding north and east to Grande Prairie, or south to Kamloops before going east to Calgary.

The delay caused heavy traffic in the area and McNeill didn’t reach Grand Prairie until Tuesday evening.

She said she immediately went to the town’s Bonnetts Energy Centre, a multi-purpose arena transformed into an evacuation registration centre.

Inside a large room, workers were seen sitting behind tables registering evacuees, asking them if they needed accommodations, food or toiletries.

The centre has helped 50 evacuees since Monday night and 20 of them are staying in local hotels, Dan Lemieux, with the City of Grande Prairie, said Wednesday morning.

“In addition to the evacuees from Jasper, we have several evacuees here from the First Nations that are further north in Alberta that have been evacuated,” he said.

He said every person who has registered so far has been “relatively positive” and Grande Prairie is expecting 30 to 40 more evacuees Thursday.

Jasper resident Leanne Maeva Joyeuse said in an interview at the evacuation centre Tuesday evening that she felt relieved to have made it there after 20 hours on the road with her grandmother, parents and younger brother.

But she’s anxious about how the wildfires will affect her town.

“We’re just waiting to go back home and see how many days we’re going to be stuck here,” said Joyeuse.

The evacuation centre had offered her family a hotel room for three nights.

She said her whole family was feeling mentally exhausted from the ordeal, but her dad was also physically tired as he is the only one who can drive in the family and was behind the wheel the entire trip.

She laughed as she said her grandmother had just arrived from Mauritius to visit her family in Jasper a few days before the wildfires began roaring in the province amid a sweltering heat wave.

Then she turned to her grandmother and said, “Welcome to Alberta.”

This report by The Canadian Press was first published July 24, 2024.



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Flames now 5 km from Jasper townsite as 'aggressive' wildfires burn – CBC.ca

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Flames now 5 km from Jasper townsite as ‘aggressive’ wildfires burn  CBC.ca

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BoC’s Macklem says he wants growth to pick back up as bank cuts key rate again

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OTTAWA – The Bank of Canada appeared to be increasingly concerned about the risk of high interest rates slowing the economy and inflation by more than necessary as it delivered a second consecutive rate cut Wednesday.

The central bank’s decision to lower its policy rate by a quarter of a percentage point was widely expected by economists, given the continued easing in inflation and weak economic conditions. Its key interest rate now stands at 4.5 per cent.

During a news conference, governor Tiff Macklem said that as inflation edges closer to the two per cent target, the risks associated with keeping interest rates high become more important for the central bank to consider. He noted that undershooting the inflation target would be just as concerning as overshooting it.

“That need for growth to pick up was something that was part of our decision to cut the policy interest rate today,” Macklem added.

The Bank of Canada’s emphasis on the state of the economy and the risk of keeping rates high for too long suggested to economists that more interest rate cuts could come sooner rather than later.

“It is definitely a clear shift in tone,” said BMO chief economist Douglas Porter.

“It almost does seem like now the bias is to continue cutting. They almost need to be persuaded not to keep cutting, I think.”

Although Macklem would not say what exactly the future path of rates may look like, he did signal there may be some curveballs along the way.

More specifically, the path back to two per cent inflation likely won’t be a straight line, he said.

“The overall weakness in the economy is pulling inflation down. At the same time, price pressures in shelter and some other services are holding inflation up,” Macklem said.

Although the governor said the Bank of Canada is “increasingly confident” that inflation is headed back to target, the push and pull between those opposing forces could affect the pace at which price growth eases.

“If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate. The timing will depend on how we see these opposing forces playing out,” he said.

“In other words, we will take our monetary policy decisions one at a time.”

The Bank of Canada delivered its first interest rate cut in four years last month, marking a major turning point in its battle against high inflation.

High borrowing costs have caused a pullback in spending by both consumers and businesses, which economists say has helped take the pressure off price growth.

Canada’s annual inflation rate fell back to 2.7 per cent in June after temporarily flaring up in May.

The Bank of Canada’s monetary policy report released Wednesday includes new forecasts, which suggest inflation will return to the two per cent target next year.

The Canadian economy, which the central bank notes remains weak relative to population growth, is expected to strengthen in the second half of 2024.

Real gross domestic product is expected to grow on average by 1.2 per cent this year, followed by 2.1 per cent in 2025.

The central bank’s next interest rate decision is scheduled for Sept. 4.

This report by The Canadian Press was first published July 24, 2024.

The Canadian Press. All rights reserved.



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