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followed a highly stimulative fiscal framework following the pandemic, from which they had not significantly withdrawn as the economy hit its capacity in the past two years.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."

Advocacy efforts to extend the CEBA repayment deadline appear to be working. The Chamber and our national network along with many other business organizations are calling on the federal government to give businesses more time to repay without losing the forgivable portion of their CEBA loans.

Chamber Chair Kris Wirk said in a September media release that “The reality facing many small businesses — especially those in hospitality, tourism and retail — is that they have a viable path to making a full recovery but it’s going to take longer than expected.”

This week, federal Small Business Minister Rechie Valdez told BNN Bloomberg that she's heard the message and seen the struggles facing businesses firsthand. She promised to go back to government to do more.

Under the Canada Emergency Benefits Account, businesses that needed help during the pandemic were offered loans of up to $60,000. Part of the appeal was that one third of the loan would be forgiven if paid by the deadline, which was extended from Dec. 31 to Jan. 18. And while 2024 seemed like a long way off in the depths of the pandemic, unforeseen challenges with inflation and interest rates has kept many businesses from fully recovering.

Chamber member Megan Johns, owner of The Green Kiss explained the situation succinctly to CBC, noting that she was on schedule with her CEBA loan until operating costs began to soar faster than her business could grow.

"Margins are getting smaller and smaller and smaller due to the rising costs across the board," Johns said. "Every aspect of the business has become more challenging and it is more challenging now than it was in 2020 so far."

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."

The effect of high interest-rates is measurable, with Statistics Canada's latest Survey on Business Conditions showing many businesses are challenged by increasing costs and reduced customer spending.

The Canadian Chamber's Business Data Lab explores the stories behind the numbers, including an analysis by Chief Economist Stephen Tapp.

"Continuing cost pressures explain why firms’ pricing behaviour still hasn’t normalized yet, even though headline inflation has slowed," Tapp said. "Thankfully, the labour market is loosening up, although there are still significant challenges in sectors such as health care, accommodation and food services, manufacturing and construction. Supply chains are also recovering from their peak difficulties of last year, but they too remain problematic for affected companies."

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.

Housing supply is at the core of Chamber advocacy. Greater Victoria, like much of North America, is facing a crunch — not enough homes are being built to meet demand. This affects the cost of living for employees, delays people from starting a family and impacts the availability of shelter for people experiencing homelessness.

A group of Canadian housing sector organizations recently released the National Housing Accord: A Multi-Sector Approach to Ending Canada’s Rental Housing Crisis. The report offers 10 solutions that aim to focus the efforts of all levels of government and industry on policies to support more building.

"It's a bit of a Catch 22 in that we need skilled tradespeople to build homes so that the market has enough supply for skilled tradespeople to be able to afford to live here," Chamber CEO Bruce Williams said. "The lack of housing affects people at all income levels but is particularly concerning for people early in their careers and those who have the added costs that come with raising kids."

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 Canadian economy continued to show resiliency this spring. Statistics Canada reports that Gross Domestic Product stayed in positive territory. The Bank of Canada will make its next interest rate announcement on Sept. 6.
 
Business leaders will be watching closely as high-interest rates used to fight inflation have a direct impact on the cost of investment. A Globe and Mail interview with CIBC World Markets' deputy chief economist Benjamin Tal is a good read for insights to help cut through the confusing times. Tal said he thinks interest rates have peaked or are close to the peak. He added that conditions are right for rapid growth in business investment in 2025 as inflation subsides and productivity increases thanks to innovations such as AI.

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."

The Chamber is calling on the federal government to give businesses who needed help during the pandemic more time to repay their Canada Emergency Business Account loans.
 
A letter to the federal Finance Minister was signed by more than 240 Canadian business organizations.
 
"Extending the repayment timeline for the CEBA loan without losing access to the forgivable portion would give many small-and-medium size businesses the stability and certainty they need to get back on their feet on a path to prosperity," states the letter.
 
Chamber CEO Bruce Williams spoke to CFAX Radio this morning to explain why many businesses need extra time. Across Canada. almost 900,000 CEBA loans were approved during the pandemic.
 
"Many businesses had no choice but to take on this loan due to circumstances beyond their control," the letter states. "This includes businesses in some of the hardest hit industries such as the retail industry and tourism sector. Mandatory business closures and other government health restrictions left businesses with severe income losses and cash flow issues."

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.

Recent good news about a strong economy and job market is bad news for the fight against inflation. That's the message from the Bank of Canada, which raised its interest rate today to 4.75%.

"Consumption growth was surprisingly strong and broad-based, even after accounting for the boost from population gains. Demand for services continued to rebound. In addition, spending on interest-sensitive goods increased and, more recently, housing market activity has picked up," the bank said in a news release. "The labour market remains tight: higher immigration and participation rates are expanding the supply of workers but new workers have been quickly hired, reflecting continued strong demand for labour. Overall, excess demand in the economy looks to be more persistent than anticipated."

What that means for Greater Victoria's economy, and whether a recession is unavoidable will be hot topics tomorrow, when the bank's Deputy Governor Paul Beaudry speaks at a Chamber Business Leaders Luncheon.

There was a slight increase in real estate sales in Greater Victoria in May, with 775 properties sold compared to 761 in May 2022.

The uptick was good news for the real estate industry, though sales are still not as high as typically seen in spring. The optimism that had been starting to grow could be short-lived however after the Bank of Canada opted to further raise interest rates today. Time will tell if the move stalls potential buyers or if it encourages more people to put their homes on the market.

"With momentum building, there’s an indication of consumer optimism in the market heading into June," Victoria Real Estate Board Chair Graden Sol said before today's rate announcement. "However, if the ongoing lack of homes for sale
persists and inventory is not added, we risk a return to an overheated market with pressure on pricing.”

The benchmark value in May for a single family home in the core Victoria municipalities was $1,297,600. That's up from $1,295,800 in April, but almost 9% lower than the benchmark value in May 2022.

The province received some welcome news about its financial state of affairs when Moody's reaffirmed BC's AAA credit rating on May 17. Moody's is the last credit agency to release its results. In April, Fitch Ratings maintained its AA+ rating for the province, while S&P Global Ratings downgraded BC from AA+ to AA. On May 1, DBRS Morningstar kept BC at AA(high).

Moody’s noted British Columbia’s attractiveness to businesses and individuals, as well as migration into the province.

Good credit ratings are vital for the province to get competitive rates on borrowing for infrastructure projects and service demands. BC has the highest credit rating among Canadian provinces across the four agencies.

Tables are selling fast for the upcoming chance to attend in-person the Bank of Canada's Economic Progress Report in Victoria.
 
The Greater Victoria Chamber of Commerce has secured the Victoria Convention Centre to ensure we have a large enough facility to meet anticipated demand for our June 8 event. The last time the Bank spoke live in Victoria, a sold-out Crystal Garden was filled with business and community leaders who had high praise for the experience.
 
"Our event is the day after what could be a crucial rate announcement, and we know many will want to better understand how the Bank makes its decisions," Chamber CEO Bruce Williams said. "It's not easy to secure an event of this importance. Business people across the country will have their eyes on Victoria, and it's pretty cool that we get to experience it in-person."
 
The Economic Progress Report will be broadcast live on. A press conference for national media will take place after the speech and Q&A session with Deputy Governor Paul Beaudry.

Big decision looms for Bank of Canada
 
With the next announcement on interest rates set for June 7, there are mixed opinions on what the bank will do.
 
Some analysts are calling for another rate hike to help mitigate the risk of high inflation, while other market strategists say they don't forecast an increase next month.
 
On May 18, the Bank of Canada's Financial System Review found three areas of concern in the economy.
 
The next scheduled event, after the interest rate announcement June 7, is the Economic Progress Report speech in Victoria on June 8.

Are you ready for the digital dollar?

The Bank of Canada is in the news this week, after announcing they're working on something called a central bank digital currency or a digital Canadian dollar. The Bank wants to be ready, though there are still plenty of questions to answer before it becomes reality.

"If a digital Canadian dollar were issued, it would be money that every Canadian could use every day," Bank Governor Tiff Macklem said.

A digital dollar wouldn't replace bank notes, and like paper bills, it would not accrue interest or change in value. If the federal government asks for a digital dollar, the Bank wants to be ready to issue the currency. They're asking Canadians for feedback through a survey running from May 8 to June 19.

"I'm sure the topic of a digital dollar will come up on June 8, in what's shaping up to be a really exiciting and historic event for Victoria," Chamber CEO Bruce Williams said.

The Chamber hosts the Bank of Canada's Deputy Governor Paul Beaudry as he delivers the next Economic Progress Report from Victoria. The reports earn national coverage and offer insight into the Bank's analysis of where the economy is heading. See more details under Upcoming Business Leaders Luncheons below.

As Greater Victoria municipalities reveal their 2023 budgets, many businesses are finding out if they'll face higher taxes this year.

Victoria, for example, has seen operating costs surge due to inflation and new spending. City council tried to scale back but businesses and residents are still facing hundreds of dollars in new costs. The typical business property assessed at $714,000 will pay an extra $445 despite getting few of the services or benefits provided to residents.

It's much worse for industrial lands, which face a 37% increase that could add hundreds of thousands to major operations.

"It's clear that we have work to do to help many of the new councillors in our region understand why reducing business taxes is an investment in community," Chamber CEO Bruce Williams said, noting that businesses need cost certainty and many were hit with rising inflation as they were beginning to return to normal after the pandemic.

"These businesses provide goods and services as well as jobs for their owners and employees. Jobs that are at risk of going away if the business is unaffordable," Williams said. "And in the case of industry, these new taxes effectively replace good jobs with money for the city to spend. That's wrong. We need to invest in our marine industries, especially, to preserve the value they add to our region."