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Inflation in Canada picks up but remains low at 1.2% – Business – CBC News

Inflation in Canada picks up but remains low at 1.2% – Business – CBC News.

Canada’s inflation rate quickened somewhat to 1.2 per cent in December, higher than November’s level but still low by historical standards.

Statistics Canada said Friday the consumer price index was led higher by gasoline, which was 4.7 per cent more expensive at the end of 2013 than it was at the end of 2012.

The loonie reacted mildly positively to the news, trading up about a quarter of a cent to 90.34 cents US.

Six of the eight categories of items that Statistics Canada tracks the price of were higher.

Prices increased in every province except B.C., where they were flat.

Loonie inches higher

If pump prices are stripped out, inflation would have come in at 1.1 per cent.

That’s still within the band of between one and three per cent, where the Bank of Canada likes to see the rate stay, but it has been on the lower end of that range for a while.

In its latest interest rate decision, the central bank said it expects inflation to remain subdued for a while yet.

Canada’s inflation rate averaged 0.9 per cent last year. That’s down from 1.5 per cent in 2012 and the softest rate since during the recession in 2009.

“When we are already below [our inflation] target, as we are today, we care more about downside risks than upside ones,” Bank of Canada governor Stephen Poloz said earlier this week.

That’s the central bank’s way of saying it’s less concerned about prices rising to fast, and instead focused on ensuring the economy doesn’t slip any further into disinflation or even deflation.

There’s a lag time of a few months before the impact of Canada’s lower loonie is likely to show itself in inflation data. So economists are expecting the inflation number to come in on the low end of the central bank’s target range for the next several months.

“The inching up in year-on-year [inflation] should not give the [central bank] very much solace on inflation,” Scotiabank said in a commentary Friday morning.

“We don’t expect annual CPI to remain above 1 per cent for too long,” the bank said.

Loonie Hits 4-Year Low After Bad Economic News

Loonie Hits 4-Year Low After Bad Economic News.

The loonie continued its long slide Wednesday, hitting a fresh four-year low against the U.S. dollar.

The Canadian dollar was trading at 92.58 cents after falling more than a cent Tuesday to its lowest close since late 2009.

The slide followed a spate of bad news about Canada’s economy. The Ivey Purchasing Managers Index, a measure of economic activity, came in much lower than expected for last month, at 46.3, compared to 53.7 the month before. A reading below 50 suggests economic contraction.

Canada’s trade deficit numbers also spooked the markets, with Statistics Canada reporting Tuesday that the country’s overall trade deficit with the world grew to $940 million in November as imports rose to $40.7 billion, while exports were unchanged at $39.8 billion.

The deficit came as the results for October were also revised to show a deficit of $908 million compared with an initial report of a surplus of $75 million for the month.

Meanwhile, U.S. economic data has been positive, further pressuring the loonie downwards.

Payroll firm ADP reported the U.S. private sector created 238,000 jobs during December. That data came two days before the release of the U.S. government’s employment report for last month. Economists expect it will show the economy created about 195,000 jobs in total. 

International traders are certainly bearish on the Canadian dollar. The Globe and Mail reports the amount of money being placed in bets against the loonie is nearing extremes, with about US$5.5 billion currently invested against it.

Investment bank Goldman Sachs forecast late last year the Canadian dollar could hit 88 cents U.S. in 2014.

Meanwhile, Bank of Canada governor Stephen Poloz doesn’t appear in any hurry to raise the Bank of Canada’s trend-setting rate. In an interview on CBC on Tuesday, he denied he was under international pressure to raise rates.

Federal Finance Minister Jim Flaherty suggested in a recent interview that there would be such pressure as a result of Fed tapering.

Poloz did say that Fed tapering will inevitably put pressure on Canadian bond yields, likely leading to an increase in long-term fixed mortgage rates even if the Bank of Canada does not increase its benchmark rate.

— With files from The Canadian Press

Worthwhile Canadian Initiative: When Will Low Interest Rates End?

Worthwhile Canadian Initiative: When Will Low Interest Rates End?.

A recent piece in the Financial Post titled “How many times can economists cry wolf about interest rates” caught my interest because I – like many economists in Canada – have been expecting interest rates to eventually start to rise and yet they do not.  So when will Canadian interest rates start to go up?  My knowledge of money and banking and monetary economics is pretty rudimentary but I’m feeling adventurous in the New Year.

At its most basic level the demand for and supply of money sets the interest rate.  If money supply shifts right faster than money demand, then interest rates will fall.  So assuming money demand is strongly driven by growing transactions fueled by rising output, I suppose one answer is that rates will rise when the growth rate of the money supply is curtailed so that it grows less quickly relative to GDP.Take a look at Figure 1.  I used the monthly estimates of M2 for Canada constructed by Cherie Metcalf, Angela Redish and Ron Shearer for the period 1871 to 1967 and combined them with the monthly estimates of M2 for 1968 to the present from Statistics Canada (v41552796). I took the monthly average each year for the period 1871 to 2013 and used this annual average to estimate the annual growth rate for M2. Over the entire period 1871 to 2013, the average annual growth rate of M2 was 7.2 percent.  While growth in 2009 during the financial crisis was 13.52 percent, it has since ranged from 4.95 to 6.60 percent. This suggests that the recent growth rate of M2 has not been that high by historical standards.

However, money supply growth needs to be considered in the context of the growth of the economy and money demand.  Figure 2 presents a more interesting picture by taking the ratio of M2 to GDP for the period 1871 to 2013.  From a ratio of just under 0.2 in 1871, the M2 to GDP ratio has grown over time.  Recent years have seen it grow to the highest it has ever been.  Of course, the period from 1870 to 1930 reflects the growth and development of the modern Canadian financial intermediary sector and monetary sector and the rise in the ratio reflects this.  However, the period since 1935 represents the “modern Canadian banking era” in that the Bank of Canada has been in existence during that period.

Figure 3 presents a graph of the trend setting Bank of Canada interest rate and it shows a hump shaped pattern with the lowest interest rates in the period from 1935 to the mid 1950s and since 2009 and the highest rates in the period from the mid 1970s to the early 1990s. On the other hand, since the Second World War, the M2/GDP ratio has shown an approximately u-shaped pattern with lowest M2/GDP ratios in the mid to late 1960s.  If the two are juxtaposed as in Figure 3a and taking into account that there is probably a lag between a drop in M2/GDP and the subsequent rise in interest rates, it appears that the peak in interest rates occurs after the low point in the m2/GDP ratio in the late 1960s. If you take the first differences of the M2/GDP ratio and the Bank of Canada rate over the period 1935 to 2013 and plot them against each other (as in Figure 4) and fit a linear trend, you do get a slight inverse relationship.  That is, a higher money supply to GDP ratio is correlated with lower interest rates.  However, I admit this is a pretty noisy picture.  Moreover, this discussion focuses just on Canada and international economic and monetary conditions play a role in the Canadian economy. It would be interesting to see how the performance of Canada’s M2 to GDP ratio over time compares to other countries.

We have been expecting interest rates to rise for several years now because GDP has recovered somewhat from the 2009 financial crisis and the Canadian economy is growing.  As a result, one might expect a growing demand for money and credit to fuel rising interest rates.  However, money supply – as measured in this case by M2 – is still growing faster than GDP.  I think we will see interest rates start to increase provided first that GDP continues to expand and then the M2/GDP ratio starts to drop.  However, its not enough that this happens just in Canada – it would also need to happen on a global scale. I don’t think that is going to happen anytime soon. For example, look at Japan.

 

Canada economy grows more than expected, boosting recovery hopes | Business | Reuters

Canada economy grows more than expected, boosting recovery hopes | Business | Reuters.

A woman carries shopping bags during the Christmas shopping season in Toronto, December 7, 2012. REUTERS/Mark Blinch
1 of 1Full Size

By David Ljunggren

OTTAWA (Reuters) – The Canadian economy showed unexpected strength in October, growing for the fourth month in a row and boosting market hopes that the country might finally be shaking off the worst of the great recession.

Statistics Canada said on Monday the economy had grown by 0.3 percent from September. Analysts had forecast a 0.2 percent advance after September’s 0.3 percent increase.

Although Canada regained most of the jobs it lost since 2008 and 2009, growth has been largely sluggish, prompting the Bank of Canada to make clear it will not raise its key interest rate until it sees signs of a firm recovery.

The economy has posted growth every month this year apart from June.

The output of goods-producing industries grew by 0.4 percent in October on higher manufacturing while service industries output climbed by 0.3 percent as almost all major industrial sectors registered growth.

“Canada’s economy is showing sustained strength for the first time since the early days of the recovery,” said BMO Capital Markets economist Sal Guatieri.

The Bank of Canada has said annualized GDP growth in the fourth quarter will be 2.3 percent, down from 2.7 percent in the third. Guatieri, though, said October’s data suggested fourth quarter growth could be around 2.6 percent.

“Importantly, this would mark the first quarter since early 2011 that GDP has posted successive increases above two percent – that is, above potential,” he said in a note to clients.

Manufacturing output grew by 1.3 percent in October while wholesale trade and retail trade advanced by 1.4 percent and 0.3 percent respectively. Construction, as well as mining, quarrying and oil and gas extraction, were unchanged.

The economy grew by 2.7 percent from October 2012, up from September’s 2.4 percent year-on-year advance.

Peter Buchanan of CIBC World Markets said the 0.3 percent increases in both October and September “suggest a fairly decent start for the economy to the fourth quarter.”

The data helped push the Canadian dollar higher and by 9.40 am (1440 GMT) it was at C$1.0601 to the U.S. dollar, or 94.33 U.S. cents, up from Friday’s close of C$1.0648 to the greenback, or 93.91 U.S. cents.

The Bank of Canada is worried about the risks posed by the persistently low inflation, which in November was just 0.9 percent, well below the central bank’s target of 2 percent.

The Bank has kept its key overnight interest rate unchanged at 1 percent since September 2010, citing in part the inflation rate and the underperforming economy.

A Reuters poll of primary dealers late last month showed that most did not expect the bank to raise rates until the second quarter of 2015.

(Reporting by David Ljunggren; Editing by Nick Zieminski)

 

Canada’s One Per Cent Sees Share Of Taxes Shrinking

Canada’s One Per Cent Sees Share Of Taxes Shrinking.

Canada’s wealthiest people are paying a shrinking amount of the country’s total tax burden, according to an analysis of new StatsCan data.

The share of federal and provincial taxes paid by the richest one per cent of earnersfell to 20.8 per cent in 2011, from 23.3 per cent in 2007, says an analysis from the Globe and Mail’s Economy Lab.

That’s not because the rich are getting poorer; StatsCan’s data on high-income earnings finds little change in recent years in the share of income taken by the wealthiest Canadians.

It’s another potential sign that Canada’s tax system is incrementally becoming more favourable to high-income earners, as well as to corporations.

For the first time ever, in 2014 more than half of the federal government’s revenue will come from personal income taxes, the result of aggressive tax cuts for corporations over the past decade and a half.

But the shrinking share of taxes paid by the richest Canadians may have to do with the collapse in stock prices during the last recession, StatsCan analysts told the Globe, because wealthy people earn more of their income through investments than middle earners, and those investments took a beating in the last recession.

Some analysts argue the rich are still paying more than their fair share of taxes. While the top one per cent paid 20.8 per cent of taxes in 2011, they collected half that share of total income — about 10.6 per cent of all earnings.

A recent study from human resources firm MacDowall Associates said the CEOs at Canada’s 60 largest publicly-traded firms made 133 times the average industrial wage in Canada in 2010 — $6.2 million, compared to an average $46,600.

But the study found taxes paid by those CEOs were 316 times the taxes on the average earner, with the top-60 CEOs paying an average of $2.52 million in income taxes, compared to just under $8,000 for the average earner.

“Do Canadian executives pay their fair share in taxes? We believe the answer is a resounding ‘yes’ based on our research,” the study concluded.

All the same, an ever-larger share of taxes in Canada is being paid by middle- and low-income earners. Personal income taxes next year will account for 50 per cent of the federal government’s total revenue, up from 30 per cent five decades ago, according to an analysis from economist Toby Sanger of the Canadian Union of Public Employees.

Opposition parties have been hammering the Harper government over “hidden” taxes that they say impact middle- and low-income Canadians in particular, such as hikes in EI premiums, which have been rising steadily, and tariff hikes in the government’s latest budget, that the opposition says will raise prices for consumers.

 

Personal debt ratio hits record high of 163.7% – Business – CBC News

Personal debt ratio hits record high of 163.7% – Business – CBC News.

Canadians’ debt ratio increased last quarter, but so did the value of their assets, so the national net worth increased. (The Associated Press)

The amount that Canadians owe compared to their disposable income rose to an all-time record last quarter, although their net worth also increased.

Statistics Canada reported Friday that the level of household credit market debt to disposable income increased to 163.7 per cent in the third quarter from 163.1 per cent in the second quarter.

That means Canadians owe nearly $1.64 for every $1 in disposable income they earn in a year.

‘The seasonal bounce in mortgage borrowing in the previous quarter picked up into the fall’– Royal Bank economist Laura Cooper

Policymakers are fixated on the debt ratio in part because it was at above 160 per cent that households in the United States and Britain ran into trouble about five years ago, contributing to defaults and the financial crisis that triggered the 2008-09 recession.

Debt loads can be influenced by seasonal factors, and although the headline figure is higher, the rate of growth in that ratio was the smallest in 12 years.

“Those figures should be encouraging for policymakers and suggest that the Bank of Canada’s belief that imbalances are evolving constructively is right on the mark,” said Benjamin Reitzes, a senior economist with BMO Capital Markets.

Indeed, while they are borrowing more, Canadians are also worth more as their assets increase by a similar amount. The national net worth increased to $7.5 trillion in the third quarter, up 2.1 per cent from the previous quarter.

On a per capita basis, that works out to $212,700 for every Canadian. The previous quarter, that figure was $208,300.

Canadians saw their financial assets go up in value, as well as their non-financial assets (such as houses) do the same. The value of shares and other equities gained 3.7 per cent in the quarter, while the value of household real estate gained 1.5 per cent.

“The pace of debt accumulation picked up slightly in the third quarter as the seasonal bounce in mortgage borrowing in the previous quarter picked up into the fall,” Royal Bank economist Laura Cooper said.

HOUSEHOLD DEBT RATIO

With files from The Canadian Press

Canada’s Great Economic Divide, In One Chart

Canada’s Great Economic Divide, In One Chart.

Canada no longer knows how to sell anything to the world except oil and gas.

Okay, that’s an exaggeration, but if things keep going the way they are, it won’t be for long.

StatsCan’s latest numbers on Canada’s trade balance, released Thursday, look positive on the face of it: Exports and imports both grew, and Canada’s trade deficit with the world shrank by more than half, to $435 million.

But dig a little deeper into the data, and what you see is a story of two different export sectors. As BMO chief economist Doug Porter put it in a client note Friday morning, “there is energy (doing just fine) and there is everything else (doing anything but fine).”

While energy exports have seen a $63.6-billion surplus for the past 12 months, everything else has seen a $72.9-billion deficit.

Check out this chart of Canada’s trade balance for energy (blue) and everything else (red).

canada trade balance

The gap between energy and everything else is translating into a regional divide in Canada — between the booming, oil-reliant West and the plodding economy of the rest of the country.

The rapid pace of oilsands development is creating economic risks and regional disparities that need to be addressed,” the left-leaning Pembina Institute said in a report released this week.

The report said the “overwhelming majority” of economic benefits from the oilsands boom “are limited to Alberta. Other provinces will benefit less: even the United States would gain more employment opportunities from the oilsands than the rest of Canada if oilsands development goes ahead as projected.”

Bringing more jobs to the oilsands wouldn’t work as a solution; the oil, gas and mining sector employs 225,000 people, compared to 1.5 million jobs in manufacturing. Booming oil exports simply can’t replace stagnating factory exports. (Incidentally, jobs in oil, gas and mining actually fell by about 0.2 per cent over the past year.)

In a report this week, BMO’s Porter called Canada’s stagnating export sector the country’s biggest economic challenge.

“Since 2000, Canadian exports have suffered through their own version of the lost decade, with volumes essentially unchanged over that spell,” Porter wrote.

“To put that in perspective, the next slowest 13-year stretch for real exports over the past half-century was 42 per cent growth from 1970-83.”

Porter notes that manufacturing employment in Canada — which is heavily dependent on exports — has shrunk by 20 per cent since 2000, even as jobs in the rest of the economy grew by a bit more than 20 per cent.

Nowhere is this more clear than in the auto industry, once one of the major drivers of central Canada’s economy. Vehicle production is down nine per cent this year — and that’s despite a global boom in auto sales

And the worst may be yet to come. Analyst Joe McCabe recently told an auto industry conference he expects car manufacturing to shrink another 28 per cent over the next decade.

So what’s to blame for this? Porter notes that the last 13 years of stagnation coincide with “the long upward march of the loonie,” which bottomed out around 62 cents U.S. in 2002 and steadily climbed to parity by 2008. The rising dollar has made Canadian exports more expensive on the global market.

That “played a key role in undercutting the manufacturing sector in particular,” Porter writes, though he’s cautious not to blame the rising loonie on oil exports — the old “Dutch Disease” debate.

But the Pembina Institute has little doubt Dutch Disease is Canada’s diagnosis.

“Recent analysis suggests that surging commodity prices explain as much as 40 to 75 per cent of the dollar’s rise,” the Pembina Institute said, referring to the loonie’s reputation as a “petro-currency.”

The report urges the government to launch a federal committee to look at the problem and recommend solutions “to ensure a robust, diverse economy that supports economic growth and competitiveness across Canada.”

IEA and EIA Data Reflect Ample US Energy Supply

 

Soaring farmland prices a crisis in the making: Don Pittis – Canada – CBC News

Soaring farmland prices a crisis in the making: Don Pittis – Canada – CBC News.

If you knew there was a very safe Canadian investment that skyrocketed by 20 per cent last year, you’d probably say that was a good thing.

But when the thing that’s going up in value is farmland, Christie Young says it’s a crisis in the making.

The latest survey by Farm Credit Canada shows the price of farmland in Quebec rose by a staggering 19.4 per cent last year. Nationally, Canadian farmland from coast to coast has risen by an average of 12 per cent a year since 2008. That’s more than five times the rate of inflation.

For people who already own farmland, soaring prices are a windfall.

But Young, executive director of FarmStart, a group trying to help young farmers get into the business of farming, says Canada is facing a sea change that bodes ill for agriculture.

“The average age of farmers is 60 years old across Canada,” says Young.

“According to StatsCan data, about 50 per cent of our land assets will be transferred in the next five years. And of the retiring farmers, 75 per cent of them don’t have successors. It’s a transition we’ve never seen before in agriculture. And it’s one we are wholly and completely unprepared for.”

FarmStart has two incubator farms in southern Ontario to bring new farmers into the business, but at current prices, Young says there is no way those starting out could earn enough from their farms to make a living and pay their mortgage.

Overpriced land

It is a problem that Rejean Girard, who farms southwest of Montreal, understands.

He bought his small plot of land near Saint-Cesaire 20 years ago. But Girard says the return he gets from the sheep he raises would never pay for that land today. By that measure, he says, the land is overpriced by about three-quarters.

StatsCan Crops 20111004Prices of farmland have risen across Canada by an average of 12 per cent a year since 2008. (Jeff McIntosh/Canadian Press)

The steadily rising price of land has caught the attention of savvy Canadian investors. Global investors have an interest, too, but in most provinces only Canadians are allowed to own farmland.

That has created an opportunity for Canadian farmland investment funds like Bonnefield, Agcapita and Assiniobia, which have been assembling blocks of farmland and selling shares to high net worth Canadians.

The president of Toronto-based Bonnefield, Tom Eisenhaur, says farmland has been one of the most lucrative and secure investments especially when markets are volatile, and “a better hedge against inflation than gold.”

Eisenhaur says he expects the price of land to continue to rise, if not at the same rate as over the past decade.

He quotes a United Nations survey that shows world food production will have to double over the next 20 years.

“While it’s trite to say, no matter how bad or how good things get in the markets, people still have to eat.”

Profits from rising prices

While Eisenhaur is profiting from rising prices, he scoffs at the idea that funds like his are responsible for the land boom.

He says that while farmers buy and sell some $15 billion worth of land each year in Canada, third-party investors like his company trade a mere $100 million worth.

So it seems clear that farmers’ pursuit of more acreage is helping to push up the price of the land.

That seems to be in direct conflict with what Girard, Young and many others say about the difficulty of paying for farmland with a farm income.

That is, until I speak with Gary Brien who farms near Chatham, Ont..

P.E.I. FARM FEATUREThe steadily rising price of farmland has caught the attention of savvy Canadian investors (Canadian Press)

“The way we’ve looked at it is more of a way of life. It just so happens the land has gone up as we accumulated it over our lifetime,” says Brien. “I really don’t think we own it. We’re just using it while we’re here. The value to us may not be in a dollar value.”

Brien says that the last few years, bumper crops have pushed up farm incomes to record levels, so farmers have had cash to spare. And when farmers have money on hand, their non-monetary way of thinking of land, combined with the tax rules, encourages them to put that spare cash into farmland, whatever the price.

“Farmers don’t like paying income tax,” says Brien. “And if they get a bunch of money and have a choice to pay income tax, or buy more land, they buy more land.”

Bigger and bigger

That tends to mean existing farms are getting bigger and bigger, able to take advantage of the efficiencies of expensive modern farm machinery and make the money to buy more land.

But that doesn’t help the farmers who are just starting out small, without inherited family land and little prospect of paying off a mortgage, even if they could get one.

“We have farmers in rural areas paying far over the productive value of the land that they are buying because they have the income or there are such scarce land resources that they’ll pay anything,” says Young.

“For a new entrant looking at that landscape, it is almost impossible to conceive of buying a farm.”

 

Struggles of the young and jobless – Business – CBC News

Struggles of the young and jobless – Business – CBC News. (FULL ARTICLE)

Friday’s employment figures held a rare spot of good news for young workers – the creation of 15,700 jobs for 15- to 24-year-olds in September.

The burden of unemployment has fallen especially heavily on Canada’s youth over the last three to five years.

Youth joblessness currently stands at 12.9 per cent, down from 14.1 per cent in August, possibly on account of many young people returning to school in the fall. That compares with a Canada-wide unemployment rate of 6.9 per cent.

‘It definitely is a very competitive job market, and when it is competitive, employers have more choices.’– Manjeet Dhiman, job counsellor

Youth participation in the workforce is a scant 63 per cent, and only 48 per cent of young workers have full-time employment, with the rest making do with part-time work, according to Statistics Canada.

And while dismal job prospects have encouraged many young Canadians to stay in school, for many, a master’s degree is no guarantee of employment in any job, let alone in their field of study.

 

Canada Created 60,000 Jobs In July — Or Did It Lose 39,000?

Canada Created 60,000 Jobs In July — Or Did It Lose 39,000?.

 

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