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.
Demands for government intervention in Air Canada labour talks could negatively affect airline competition in Canada, the CEO of travel company Transat AT Inc. said.
“The extension of such an extraordinary intervention to Air Canada would be an undeniable competitive advantage to the detriment of other Canadian airlines,” Annick Guérard told analysts on an earnings conference call on Thursday.
“The time and urgency is now. It is time to restore healthy competition in Canada,” she added.
Air Canada has asked the federal government to be ready to intervene and request arbitration as early as this weekend to avoid disruptions.
Comments on the potential Air Canada pilot strike or lock out came as Transat reported third-quarter financial results.
Guérard recalled Transat’s labour negotiations with its flight attendants earlier this year, which the company said it handled without asking for government intervention.
The airline’s 2,100 flight attendants voted 99 per cent in favour of a strike mandate and twice rejected tentative deals before approving a new collective agreement in late February.
As the collective agreement for Air Transat pilots ends in June next year, Guérard anticipates similar pressure to increase overall wages as seen in Air Canada’s negotiations, but reckons it will come out “as a win, win, win deal.”
“The pilots are preparing on their side, we are preparing on our side and we’re confident that we’re going to come up with a reasonable deal,” she told analysts when asked about the upcoming negotiations.
The parent company of Air Transat reported 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 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.
It attributed reduced revenues to lower airline unit revenues, competition, industry-wide overcapacity and economic uncertainty.
Air Transat is also among the airlines facing challenges related to the recall of Pratt & Whitney turbofan jet engines for inspection and repair.
The recall has so far grounded six aircraft, Guérard said on the call.
“We have agreed to financial compensation for grounded aircraft during the 2023-2024 period,” she said. “Alongside this financial compensation, Pratt & Whitney will provide us with two additional spare engines, which we intend to monetize through a sell and lease back transaction.”
Looking ahead, the CEO said she expects consumer demand to remain somewhat uncertain amid high interest rates.
“We are currently seeing ongoing pricing pressure extending into the winter season,” she added. Air Transat is not planning on adding additional aircraft next year but anticipates stability.
“(2025) for us will be much more stable than 2024 in terms of fleet movements and operation, and this will definitely have a positive effect on cost and customer satisfaction as well,” the CEO told analysts.
“We are more and more moving away from all the disruption that we had to go through early in 2024,” she added.
This report by The Canadian Press was first published Sept. 12, 2024.
