The Bank of Canada did as expected this morning and held steady on its overnight interest rate.
"Economic growth has remained weak, and inflation has eased further as higher interest rates restrain demand and relieve price pressures," Bank of Canada Governor Tiff Macklem said at the morning media conference. "But with inflation still close to 3% and underlying inflationary pressures persisting, the assessment of Governing Council is that we need to give higher rates more time to do their work. With that in mind, Governing Council decided to maintain the policy interest rate at 5%. We are also continuing our policy of quantitative tightening." The Bank cited its reasons for holding its rate as slow economic growth around the world, including in the United States, the increasing cost of oil, and inflation remaining higher than the target range of 2%. "Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour," the Bank's statement said. The Bank's next scheduled interest rate announcement is April 10.
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Canada is a trading nation, and many businesses in Greater Victoria provide goods and services to an international customer base. Building connections across borders is vital to helping business operate as smoothly as possible.
On Monday, the Chamber welcomed Vancouver-based US Consulate General Jim DeHart to Victoria. "I've spoken with Mr. DeHart during trade missions in the past and he's always expressed an interest in learning more about Greater Victoria and Vancouver Island," Chamber CEO Bruce WIlliams said. "I'm glad we were able to host him for a roundtable with some of our region's business leaders for a discussion on trade and cross-border relations." Topics covered an array of interests, including labour force mobility, credential recognition and ongoing efforts to streamline regulations. As expected, the Bank of Canada left its overnight rate at 5% — though there were suggestions in today's announcement that rates could come down eventually.
The bank remains concerned about ongoing high inflation and forecasts core costs to continue increasing by 3% in 2024, before easing to the target rate of 2% in 2025. Among the metrics the bank is watching are wages, which continue rising around 4% to 5% annually, even as job vacancies are being created at a slower rate than population growth. "Global economic growth continues to slow, with inflation easing gradually across most economies. While growth in the United States has been stronger than expected, it is anticipated to slow in 2024, with weakening consumer spending and business investment," the bank said. "In Canada, the economy has stalled since the middle of 2023 and growth will likely remain close to zero through the first quarter of 2024. Consumers have pulled back their spending in response to higher prices and interest rates, and business investment has contracted." The Consumer Price Index rose 3.4% on a year-over-year basis in December, following a 3.1% increase in November. The increase adds a little more uncertainty to what the Bank of Canada will do at its next interest rate announcement on Jan. 25.
Some of the reasons for the acceleration in inflation include higher costs for airfares, fuel oil, passenger vehicles and rent. Prices for food rose 4.7% year over year in December. Greater Victoria's unemployment rate of 4.1% in December was unchanged from November 2023. According to Statistics Canada, the region's population increased to 367,400 from 366,700 over the month.
Our local labour force was also up with 244,700 people in December compared to 242,900 in November. The stats reflect the national trend as employment growth slowed in the second half of 2023 with population growth outpacing the number of new jobs added to the economy. "The momentum in the labour market is weakening alongside the fastest population growth in more than 50 years," Canadian Chamber Senior Economist Andrew DiCapua stated in a news release. "With essentially flat job growth in December, the Canadian labour market ends 2023 with over 5% wage growth and an unemployment rate steady at 5.8%. Although hours worked rose for the month, this will be a drag on fourth quarter GDP as we round out the year. This signals to the Bank of Canada that the guise of a strong labour market is cracking amid strong labour force gains. With wages accelerating, the Bank was wise to not celebrate at their last meeting, possibly delaying their intentions to begin rate cuts." The Canadian Chamber has sent an open letter to the Prime Minister's Office calling for the government to focus its foreign policy on results rather than "good feelings."
"It is clear that we can no longer take for granted the stable and peaceful international conditions that Canada helped to shape following the Second World War. This moment calls for a sober assessment of our international priorities and a recalibration of how we engage with other nations," states the letter from Canadian Chamber President and CEO Perrin Beatty. The Chamber is concerned about Canada's place in a world that has profoundly changed over the last few years, "with the international order being challenged and undermined on many fronts." The letter notes that, other than the Indo-Pacific Strategy, Canadian foreign policy has become reactive and unfocused, "signaling that we have too often concentrated our efforts on policies designed to produce good feelings instead of on those that will produce good results." The Canadian Chamber has proposed three ways to improve Canada's international standing. The first is to fulfill our trading potential as a reliable global supplier. The second is showing a serious commitment to economic and security commitments that Canada helped establish after the Second World War. And the third is recognizing the value of good relationships with our North American neighbours by promoting Canada's importance in those countries. "The Canadian Chamber of Commerce is a longstanding advocate of unlocking Canada’s international potential, and we support our businesses in trade advocacy, navigating global markets and representing Canada at key multilateral fora," the letter concludes. "The Canadian business community recognizes that our collective long-term prosperity is closely tied to how we engage with the world." Never bet against the ingenuity of small business, especially when entrepreneurs and employers work together.
The Chamber was among 240 organizations that sounded the alarm last year about the looming Jan. 19 deadline for the Canada Emergency Business Account. The federal government has committed to reviewing, on a case by case basis, the circumstances of businesses still struggling to pay back their loan. However, the Canadian Chamber of Commerce reports that more than three-quarters of businesses that accessed the loan were able to repay in time. Additionally, a company specializing in small business financing recently announced it has secured $300 million to help businesses that need to refinance their CEBA loans. BC-based Merchant Growth is working with financial advisor Raymond James to help businesses that need to refinance their CEBA loans. "Help is available for businesses who continue to be impacted by the effects of the pandemic and the rise in inflation and interest rates," Chamber CEO Bruce Williams said. "If you're ever facing a situation where you are not sure what to do, please know that The Chamber is here for you and we will do everything in our power to help." In 2023, generative artificial intelligence was suddenly everywhere. It's showing up in business software applications, Internet search functions and standalone apps that enable even non-technical users to overcome writing, coding and design challenges.
To help businesses benefit by adopting AI responsibly, the Canadian Chamber of Commerce held an AI Executive Summit on Nov. 22. Among the key themes that emerged were:
The themes will guide the work of the recently formed Future of AI Council, a 30-member forum representing a cross-section of organizations. The council "will play a leading role in advocating for government policies that establish AI as a positive economic force through the responsible development, deployment and ethical use of AI in business." It ain't over 'til it's over, but there are promising signs that better days are ahead for everyone squeezed by inflation and interest rates.
That was the sentiment of the Bank of Canada, which held rates steady at 5% today, citing a sluggish Canadian economy that's slowing the rise of prices for many goods and services. "Combined with the drop in gasoline prices, this contributed to the easing of ... inflation to 3.1% in October," the bank stated in its media release. "However, shelter price inflation has picked up, reflecting faster growth in rent and other housing costs along with the continued contribution from elevated mortgage interest costs." Most analysts, such as CIBC's Avery Shenfeld and the Conference Board of Canada, said the statement aligned with market expectations that also call for interest rates to begin to drop in mid to late spring. Shenfeld noted the bank no longer considers Canada's economy to be in "excess demand," though today's messaging included a warning that rates could rise again if we don't stay the course. "Governing Council ... continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour," the media release said. The provincial government released its Q2 fiscal update on Tuesday, calling for a smaller deficit than previously forecast. The difference is due to bringing in more revenue from personal and corporate income taxes as well as $358 million in federal funding for wildfire recovery.
BC's Second Quarterly Report now projects a $5.6-billion operating deficit this year, and an improved debt-to-GDP ratio of 17%. Next week, BC's Minister of Finance is scheduled to meet with the Economic Forecast Council to discuss next year's budget, which will be released on Feb. 22. Traditionally, the minister addresses members of the Greater Victoria Chamber of Commerce shortly after budget day. Among other highlights in the Q2 report were:
Watching inflation numbers is a bit like going fishing. Anticipation builds as we approach the latest monthly update on the Consumer Price Index from Statistics Canada. And much like the feeling when you lower your rod into the water, even a subtle sign can feel exciting. The latest nibble to delight inflation watchers happened Tuesday as CPI came in at 3.1% for October. That marks a significant deceleration from 3.8% in September.
Lower gas prices helped lower inflation last month, while mortgage costs and food prices are keeping it higher than the Bank of Canada's target rate of 2%. The Bank makes its next interest rate announcement on Dec. 6, with expectations that it will hold steady before potentially starting to lower rates next spring. The federal government's much-anticipated fall economic statement was released yesterday, Nov. 21. There were few surprises from a government that has little room left to spend and a tepid economic environment to work with.
"(The federal government) followed a highly stimulative fiscal framework following the pandemic, from which they had not significantly withdrawn as the economy hit its capacity in the past two years. That forced the Bank of Canada to apply even more restrictive monetary policy to offset the effects of the government’s stimulative impulses, akin to pushing the brake and gas pedals at the same time," the Conference Board of Canada said in its analysis. "Let us hope that the two policymaking bodies can begin to row in the same direction in the future as inflation pressures subside. Interest rates will likely be coming down next year, but negative federal fiscal balances also need to be pushed back toward neutral territory at a greater pace." There are some positives for business as the statement included proposals to ensure open access to markets, fewer taxes on mental health support and relief for mortgage holders at risk from higher interest rates. The government also earmarked $15 billion for rental home construction, though there are no details on how the funds will deliver 30,000 new units as promised. Consultations have begun on the 2024 federal budget and The Chamber will work with our national network to give members a voice in the process. It's a strange time for the real estate industry, which is a major contributor to Greater Victoria's economy. The winter typically brings a slow down, but high interest rates and uncertainty about the future are chilling activity in our region and across the country.
"Overall, property sales drifted down in October compared to the previous month, likely due to consumers continuing to navigate interest rates higher than those seen in nearly two decades," Victoria Real Estate Board Chair Graden Sol said. "The uncertainty around the direction of the Bank of Canada rate announcement in mid-October may have caused some buyers to push their purchasing plans into the future because it was unclear if rates were going to be hiked again or remain stable." VERB said sales were down 15.2% in October compared to the same month last year. Total listings have increased by 25.7% over the same time. Meanwhile, the benchmark value for a single family home in the region's core in October was $1,305,900 — up 3.9% from October 2022. "Greater Victoria typically fares better than many other regions during economic downturns because of our diversity of sectors," Chamber CEO Bruce Williams said. "We have a large public sector, for example, that relies on the services and goods of other industries. What we've seen in the past is that those who can, lend support to those in need. This current situation will pass, but let's remember to exercise compassion and kindness in the spirit of supporting our local economy." Some good news this morning for businesses and households feeling the pinch of higher borrowing costs.
The Bank of Canada kept its target for the overnight rate at 5%, signalling that earlier efforts to cool inflation by slowing the economy are working. Interest rates climbed faster than expected as inflation spiked after a series of global crises. The war in Ukraine, climate events in agricultural areas and disrupted supply chains have been cited for increasing input costs. The central bank said today that it might still raise interest rates further, though some experts say the message is likely more bark than bite. The Conference Board of Canada said that fears of a recession could become a "self-fulfilling prophecy." The Bank of Canada’s recent Survey of Consumer Expectations found that 55% of respondents expect a recession is coming. "It is likely these recession fears are encouraging households to scale back their spending, a finding backed by trends seen in our Index of Consumer Spending and Index of Consumer Confidence," the Conference Board said in its report. "This additional pull-back could give the final nudge to materialize a recession within Canada." Last week's announcement by the federal government that it was working with Canada's largest grocers to stabilize food prices is a start. But it will take more than blaming business to bring inflation back to its target rate of 2%.
On Oct. 5, the Minister of Innovation, Science and Industry said grocery store chains were committed to price stability. The government also moved to strengthen the voice of consumers, increase industry transparency and improve available data on Canada's agri-food supply chain. Yesterday, an industry association representing grocers called for a pause on increases to the regulated price of milk. The Canadian Dairy Commission sets changes to the cost of milk that take effect every February. "If government is serious about reducing the price of groceries it needs to look at cutting costs before products get to retailers," Chamber CEO Bruce Williams said. "Government contributes to cost increases when it adds regulatory burdens and increases taxes. We can't expect farmers and other producers to pay for these extra costs which get passed along to the consumer." How much is too much when it comes to adjusting price points to ensure your business stays sustainable? In a speech yesterday to the Montreal Chamber of Commerce, the Bank of Canada said changes to how prices are set has become a risk for inflation.
"In ordinary times, prices are sticky. Companies typically don’t adjust prices often, even if input costs change or consumer demands shift. Why not? Because it can be expensive to change prices," Bank of Canada Deputy Governor Nicolas Vincent said, citing steps in a typical process to analyze competitive risks. "But during the recovery from the pandemic, firms were faced with fast-rising input costs and they saw that consumers had less choice because supply was low everywhere. This allowed them to pass those changes on to consumers more quickly and more fully than usual." The Bank, which is scheduled to make its next interest rate announcement on Oct. 23, said it's concerned that rising prices are now seen as normal. "If stores expect their suppliers and competitors to change prices more frequently, and consumers are willing to continue paying higher prices rather than shopping around, then it creates a feedback loop," the Bank said. "This could make prices more sensitive to shocks, making it more difficult to get inflation back to our 2% target." Unless you're stuck under the proverbial rock, you know that economies around the world are facing some serious doldrums. The latest report from the Conference Board of Canada adds to the dreary outlook. Headlined, "Consumer confidence falls to Its second lowest point to date," the index of Consumer Confidence shows that Canadians are feeling bummed about their finances.
"We had hoped to be through the rough patch by now but it's proving persistent," Chamber CEO Bruce Williams said, noting that the fight against inflation and the re-balancing of global supply chains continues to take a toll. "We will get through this, as we have countless times in the past, by supporting each other. So much work has gone into building a resilient economy for Greater Victoria, and, as a result, we are in a better place than many other regions." The Index of Consumer Confidence was 59.6 in September, compared to 61.2 in August. The Conference Board said wildfires likely contributed to the pessimistic outlook in BC. The Consumer Price Index rose 4% year over year in August, Statistics Canada reported this week. That's up from a 3.3% increase in July.
"In addition to facing higher energy prices, Canadians paid more for rent and mortgage interest in August," Statistics Canada said. "Moderating the all-items CPI were declines in prices for travel-related services and a smaller increase in food prices compared with the previous month." The rise in inflation could impact the Bank of Canada's next interest rate decision. In a summary of deliberations, released today, the Bank noted that they had concerns about pausing rate increases last month. The Bank said it needs to make sure Canadians aren't expecting interest rates to be lowered soon, and that there is still a risk of ongoing high inflation. The Bank of Canada announced this morning that it was holding its interest rate at 5%, as expected. The next announcement is Oct. 25.
The Bank's Governing Council said there are signs that supply is catching up to demand, and it is still assessing how previous rate hikes are affecting the economy. "However, Governing Council remains concerned about the persistence of underlying inflationary pressures, and is prepared to increase the policy interest rate further if needed," said the news release issued by the bank. The pause comes as political pressure increases to stop raising rates, though the Bank has been clear it's committed to restoring price stability for Canadians and does not make decisions based on government requests. "I know a lot of our members are affected by increasing costs caused by inflation and higher interest rates," Chamber CEO Bruce Williams said. "It's not an easy time, but we're also seeing investments in more efficient operations and a focus on sustainability that will make our community more resilient in the long run." The provincial government announced today that it received more revenue than expected for fiscal 2022-23.
Public Accounts show B.C. ended the year with a $704-million surplus and no operating debt, helped in part by income tax generated by high employment. BC Minister of Finance Katrine Conroy, who spoke to Chamber members on March 1, said investing in people and businesses is paying off. “We’ve seen time and again that when we invest in people and the services they count on to build a good life here, it makes our economy stronger and more resilient,” Conroy said in the news release, which also noted that BC has the lowest debt-to-GDP ratio in Canada. The Chamber will continue to work with decision-makers in all levels of government to reduce the tax burden faced by business, while also calling for smart investment. "These revenue figures show that the province clearly can do better at reducing costs borne by businesses, such as the Employer Health Tax," Chamber CEO Bruce Williams said. "The best investment any government can make is creating the right climate for entrepreneurs and businesses, who drive the majority of employment in BC." The next report on provincial finances will be the first quarterly report for 2023-24 in September. Inflation is running hot in Canada, though the relationship between higher prices and the likelihood of the Bank of Canada raising rates is "complicated." The rate was 3.3% in July compared to 2.8% in June. Some of the higher costs are directly related to interest rates, which make some mortgages and loans more expensive and impacts renters as well as homeowners. The summer heat also caused energy demand to soar, and the war in the Ukraine continues to impact food prices worldwide.
The Bank of Canada has been clear that tamping down inflation remains its priority. That means another raise in interest rates remains on the table next month. However, the Conference Board of Canada reports that inflation could be feeding on itself as consumers and businesses have come to expect prices to keep rising. How is your organization dealing with cost uncertainty? Share your stories or advice for other businesses at communications@victoriachamber.ca. The blue skies of summer appear to reflect the sunny disposition of spenders, according to July's Consumer Confidence Index.
The Conference Board of Canada reported an increase of 5.5 points over the previous month. The long range outlook was more moderate, though it seems a majority of Canadians are hopeful that better economic times are ahead. In BC, consumers were buoyed by the provincial benefits handed out to more than two million people. The climate tax credit and increased family benefit helped individuals facing higher costs due to inflation. "We encourage everyone who has been helped by these benefits to remember the importance of helping local business," Chamber CEO Bruce Williams said. "Investment in the economy works by supporting the people in our community who provide the goods and services we all rely on." Everyone concerned about the cost of borrowing could be forgiven for feeling a bit of relief yesterday with news that inflation is slowing faster than expected.
Statistics Canada's Consumer Price Index for June was 2.8%. That's less than had been forecast and closing in on the Bank of Canada's target rate of 2%. However, the Canadian Chamber points out that there's more to the number than meets the eye. "Unfortunately, the stickiest and hardest part of the inflation fight is only just beginning," Chamber Senior Research Director Marwa Abdou said, noting that energy costs account for much of the drop. "We may have to get used to tight monetary policy (from the Bank of Canada), as the lagged effects of previous actions work their way through the economy." It's been far from a smooth process bringing an end to the strike affecting Canada's Western ports. The "off again on again" strike created a significant disruption to supply lines on the Island and across the country.
The strike has kept $9.9 billion worth of goods from flowing smoothly from the ports to businesses and consumers, according to the Greater Vancouver Board of Trade. "Every day that the strike is going adds to the uncertainty that many businesses are feeling," Chamber CEO Bruce Williams said. "I spoke with a number of chamber members and we are concerned for smaller businesses that don't have large warehouses to store inventory. Many of these businesses rely on efficient shipping to get specialty foods, parts or items based on current demand. It's also a stressful time for businesses that rely on the ports for exports. Hopefully the backlog caused by the strike will clear up as soon as possible." Last Thursday, The Chamber hosted Bank of Canada Deputy Governor Paul Beaudry for the unveiling of the Bank's Economic Progress Report at the Victoria Conference Centre. Two hundred business and community leaders were at the event, sponsored by Odlum Brown, the City of Victoria and Grant Thornton.
Beaudry's speech and Q&A session with Chamber CEO Bruce Williams offered fascinating insight into how the bank decides on raising interest rates. "On behalf of all Chamber members and our board, I'd like to thank Deputy Governor Beaudry for taking the time to speak with us," Chamber CEO Bruce Williams said. "He was able to answer some of the questions on the minds of many members, and many Canadians judging by the widespread media coverage Victoria received because of this event." The speech was followed by a press conference that was attended in-person by local media as well as virtually by financial journalists across the country. |
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