Inflation And Rising Costs Archives

Bank cuts interest rates again as uncertainty remains

January 29, 2025/in BizNews This Week, Chamber Awareness, Global Uncertainty, Inflation And Rising Costs/by Jim Zeeben

This morning, the Bank of Canada reduced its target for the overnight rate to 3%. The Bank also said it was ending quantitative tightening, starting gradually in early March.

Economic projections are more fuzzy now than they typically are because of the shifting political landscape, particularly the threat of US tariffs.

“With inflation around 2% and the economy in excess supply, Governing Council decided to reduce the policy rate a further 25 basis points to 3%. The cumulative reduction in the policy rate since last June is substantial. Lower interest rates are boosting household spending and, in the outlook published today, the economy is expected to strengthen gradually and inflation to stay close to target,” the Bank stated. “However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. We will be following developments closely and assessing the implications for economic activity, inflation and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.”

Inflation falls lower in December: Statistics Canada

January 22, 2025/in BizNews This Week, Inflation And Rising Costs/by Jim Zeeben

There was good news from Statistics Canada this week as the agency reported inflation continued to slow in December. The Consumer Price Index was 1.8% on a year-over-year basis in December, down from 1.9% in November. Restaurant meals and alcohol were directly connected to the deceleration.

A temporary GST break on some items took effect in December, lowering the cost of food, booze, tobacco and cannabis as well costs for recreation, education, reading, clothing and shoes.

Eight predictions for Canada’s economy in 2025

January 15, 2025/in BizNews This Week, Chamber Awareness, Fair Rules, Finding And Keeping Workers, Global Uncertainty, Government Federal, Housing, Immigration And Integration, Inflation And Rising Costs, New And Established Businesses/by Jim Zeeben

No one knows what the future holds, but that doesn’t mean we can’t take a shot at forecasting what’s to come. Here, with the help of the Canadian Chamber’s Business Data Lab, are Chief Economist Stephen Tapp’s eight predictions for the economy. Note that the following list is edited and condensed for space. Read the full article here.

1. Affordability will remain a key consumer and political concern

A big story in 2024 was that inflation was tamed faster than expected — the “soft-ish landing” few economists thought possible. But there are no victory parties planned. Prices are up almost 16% since 2020, and even more, for some essential items such as food and shelter. Politicians will keep searching for policy solutions ahead of the upcoming federal election.

2. Work stoppages will remain elevated

Take rising unit labour costs for businesses, add in workers’ anxieties about affordability and automation, and the result has been a huge increase in work stoppages over the past two years. The last time we had this many work stoppages was almost 40 years ago. Expect this trend to continue in 2025.

3. Immigration will slow down, but the government won’t hit its 2025 target

After pandemic lockdowns lifted, Canada significantly increased immigration, led by non-permanent residents. After a policy U-turn last year, Canada’s population growth is on track to go into reverse in 2025, causing a significant drag on headline economic growth. I would be surprised if, in an election year, the government hits the ambitious target to slow immigration this much, this fast.

4. Trump will weaponize uncertainty and impose tariffs on Canada’s exports

My base case for 2025 is that Trump will impose tariffs on Canadian exports, almost immediately after his inauguration. Our BDL modelling suggests such a move would be disastrous for North America’s economy. However, looking further down the road, I have much more conviction that the economic ties that bind us together will be strong enough that ultimately a trilateral North American trade pact will continue after Trump’s second term ends.

5. Bank of Canada will continue cutting rates and the dollar will depreciate further

The Bank cut rates at its last five meetings of 2024, bringing its policy rate down from 5% to 3.25%. Financial markets have priced in a few more rate cuts, bottoming out around 2.6%. If the tariff threat is realized, short-term Canadian interest rates need to go much lower to support activity. Given a diverging outlook for monetary policy relative to the US, the Canadian dollar would have further to fall, which will partially cushion the blow, but that will raise import prices and make Canadians rethink their travel plans to the US this year.

6. Canadian trade will initially outperform expectations

The unfortunate experience of steel and aluminum tariffs in Trump’s first term offer some guidance. There was an initial period when businesses “stockpiled” inventories before the tariffs came into force. We expect a similar dynamic this time around.

As such, I expect Canadian exports to outperform expectations, at least very early in 2025, as US importers rush to avoid potential tariffs.

7. Housing prices will rise again

With lower borrowing costs, combined with new mortgage rules to extend amortizations, along with the painfully slow process to raise housing supply, I expect average home prices in Canada to rise in 2025, causing more concern for first-time home buyers. New record highs in the next few years shouldn’t be ruled out.

8. Canadian productivity will be less awful

I’ll end with a mildly optimistic outlook for Canada’s productivity.

Canadians are working harder, not smarter. We’re putting in more hours. Unfortunately, output growth isn’t keeping pace. The result is less output produced per hour. Here’s hoping that this year, with lower borrowing costs, businesses and workers will ambitiously invest in new technologies to uncover better, faster and cheaper ways to create value. It’s desperately needed and something everyone can raise a glass to!

Second big-rate-cut aims to spur business investment

December 11, 2024/in BizNews This Week, Inflation And Rising Costs/by Jim Zeeben

The Bank of Canada slashed its overnight rate by 0.5% for the second time in a row.

This morning’s announcement brings the rate to 3.25%.

“Governing Council has reduced the policy rate substantially since June. Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time,” the Bank’s statement said, adding it is committed to holding inflation to its current rate of about 2%.

The Conference Board of Canada said its latest survey on business confidence showed 35.1% of business leaders cited higher interest rates as a factor affecting expenditures. It’s the first time since 2022 that fewer than 40% of businesses cited interest rates as a concern when making capital investments.

The Bank of Canada’s next scheduled rate announcement is Jan. 29, 2025.

Helping make sense of inflation/interest forecasts

November 20, 2024/in BizNews This Week, Inflation And Rising Costs/by Jim Zeeben

Over the past two years, a new pastime emerged called “what will the Bank of Canada do next?” When inflation began surging in 2021, the era of low interest rates suddenly ended. Now, with inflation back to the 2% target and interest rates falling, understanding where the economy is going is still not a simple task.

The hitchhiker’s guide to BoC watching in this easing cycle is the cheeky title of a new report released today by CIBC senior economist Ali Jaffery.

In the update, Jaffery notes the different tactics used by the Bank of Canada compared to the US Federal Reserve to communicate their intent ahead of rate announcements. The strategies differ in how they spoon-feed market watchers, with the Canadian central bank preferring to let the data do the talking. This reflects the more cautious nature of Canadians, Jaffery says.

As for what to expect from the Bank of Canada at their next rate announcement on Dec. 11, most economists see the most recent statistics as a harbinger of another rate cut.

“With upcoming GDP data expected to show weak economic growth, a 0.5% rate cut (on Dec. 11) seems likely,” Canadian Chamber Senior Economist Andrew DiCapua says. “While some sticky inflation pressures are easing, even the Bank’s anticipated uptick in inflation won’t change the narrative. Q3 GDP probably won’t deliver the strength they’re hoping for, which reinforces the need to support businesses and growth.”

Feds step in to end labour disputes at Canadian ports

November 13, 2024/in BizNews This Week, Fair Rules, Food Security, Global Uncertainty, Government Federal, Inflation And Rising Costs, Transportation Options/by Jim Zeeben

The Chamber was part of advocacy efforts that succeeded in ending the recent labour disputes that had shut down vital ports across Canada.

The Chamber was a signatory to a letter that went directly to federal Minister of Labour and Seniors Steven MacKinnon. That effort helped push the Canada Industrial Relations Board to announce on Tuesday that it will impose final binding arbitration to resolve labour disputes at ports in British Columbia, Montreal and Quebec.

This decision will swiftly end disruptions and resume port operations, while extending current collective agreements until new ones are finalized.

“As an Island economy, we need our supply chains to operate efficiently,” Chamber CEO Bruce Williams said. “Any disruptions can have critical impacts on businesses ability to plan with certainty.”

Canada Post could face labour disruption this week

November 13, 2024/in BizNews This Week, Fair Rules, Finding And Keeping Workers, Inflation And Rising Costs/by Jim Zeeben

The Canadian Union of Postal Workers and Canada Post are preparing for labour action as early as this Friday. The consequences could impact businesses ability to use the postal service to deliver documents and goods.

Last week, a solidarity rally was held outside the Canada Post facility in Saanich to send a message that employees are united in their demands. Meanwhile, Canada Post said it intends to continue operations regardless of what happens, though a strike would likely delay deliveries.

“Businesses need certainty so they can plan for expenses needed to provide services or goods. Any disruption that adds uncertainty creates risk and can be especially stressful for many small businesses operating with tight margins,” Greater Victoria Chamber of Commerce CEO Bruce Williams said in a statement to Black Press. “We’re hoping the two sides can continue negotiations to achieve a fair agreement that allows this national institution to continue to serve Canadians while keeping good jobs in our region.”

Business in Greater Victoria impacted by a strike can turn to local delivery services.

Maximum Express, Courier, Freight and Logistics announced this week it’s offering to deliver mail for $6 per delivery to help reassure businesses in case a postal strike happens.

Supersized interest rate cut aims to spur economy

October 23, 2024/in BizNews This Week, Business And Economic Strength, Global Uncertainty, Inflation And Rising Costs/by Jim Zeeben

Does today’s news from the Bank of Canada mark the start of better times? Maybe.

There is certainly plenty of buzz surrounding this morning’s announcement that the policy interest rate has been cut by 0.5% to stand at 3.75%. It’s the biggest drop since 2020, back when the bank needed to reassure an economy frozen by fear in the early days of the pandemic.

To better understand today’s situation, the following post by RBC is helpful. Cutting Through Interest Rate Chatter: What Interest Rate Changes Really Mean for You offers a few ways to think about today’s news. The cut has potentially created a “sweet spot” for first-time home buyers. As more people decide the time is right to list their house, buyers might be able to take advantage of a lag in prices before they return to previous levels.

Today’s rate cut is also welcome news for homeowners needing to renew mortgages. The landscape looks much better than it did before the Bank started its series of four straight rate cuts. Variable mortgage holders will also feel immediate relief with more money staying in their pockets or going toward their mortgage’s principal.

And best of all, more rate cuts appear to be on the horizon. According to the Bank of Canada’s Governing Council, it will continue to lower the rate if the economy stays on its expected path.

Stormy seas for businesses right now but smoother sailing coming

September 18, 2024/in BizNews This Week, Business And Economic Strength, Global Uncertainty, Inflation And Rising Costs/by Jim Zeeben

Businesses in Canada aren’t feeling great about current conditions but many sense brighter times ahead. That was the finding of the latest Canadian Survey on Business Conditions by the Canadian Chamber’s Business Data Lab.

“In fact, this is now the best showing for the ‘year-ahead’ question in the almost three years,” says Stephen Tapp, Chief Economist at the Canadian Chamber of Commerce. “Interest rates are beginning to fall across the developed world, the Bank of Canada is increasingly winning the war against inflation, and businesses are expecting a soft landing, with employment growing modestly over the next three months. And while we have signs of good news, businesses remain worried about fragile supply chains due to ongoing labour disputes across Canada’s transportation network.”

Indigenous-owned firms in Canada stood out as particularly optimistic about their future business opportunities.

Inflation returns to target 2% opening door to rate cuts

September 18, 2024/in BizNews This Week, Inflation And Rising Costs/by Jim Zeeben

With inflation finally — finally — back to 2% and the Bank of Canada signalling a new round of deep cuts to interest rates, there’s a growing sense of optimism among many business owners.

“I think we’re all a little weary of rising prices and the sense of uncertainty that has hung around the last few years,” Chamber CEO Bruce Williams said. “The latest economic signals are hopefully a sign that stability has returned and businesses can invest in their organizations with a more predictable outcome.”

Cheaper gas and clothing as well as lower mortgage costs have helped to stabilize inflation at 2% — the target rate that the Bank of Canada says indicates sustainable growth.

Meanwhile, the federal government continues to try and spur housing growth. New rules announced this week will make it easier for young Canadians to own their home.

The $1 million price cap for insured mortgages has been increased to $1.5 million, and more first-time homebuyers will be eligible for 30 year mortgage amortizations.

Both changes take effect Dec. 15.