Rent, mortgage interest helped drive inflation 

higher in April: Statistics Canada

The Canadian Press

The first increase in annual inflation since its June 2022 peak was driven in part by higher mortgage interest costs and higher rent prices, Statistics Canada said Tuesday.

Mortgage interest costs were up 28.5 per cent in April compared with a year ago as a result of the Bank of Canada raising interest rates at a breakneck pace over the past year. That's up from 26.4 per cent in March and 23.9 per cent in February.

“That’s the sharpest increase we’ve seen recently,” said Kiefer Van Mulligen, economist with The Conference Board of Canada

Mortgage payments have spiked as Canadians are forced to renew mortgages at current high interest rates, he said.

“It's a trend that will probably continue as mortgages are renewed at the higher prevailing mortgage rates,” Van Mulligen said. “As a bigger share of mortgages are renewed at higher rates, mortgage interest writ large for Canada will go up.”

Meanwhile, inflation for rent was 6.1 per cent year over year, up from 5.3 per cent in April.

That's despite overall shelter costs rising at a slower pace in April, at 4.9 per cent.

“Rent prices are also climbing and that’s probably related to the same phenomenon,” Van Mulligen said. “Housing affordability is deteriorating because mortgages are more expensive.”

According to Rentals.ca, average advertised rental prices in April were up 20 per cent from pandemic lows in April 2021. Average rents across Canada were up 9.6 per cent compared with April 2022.

The year-over-year increase in the homeowners' replacement cost index also slowed for the 12th consecutive month, which Statistics Canada says reflects a general cooling of the housing market.

A report by RBC Economics says shelter was the largest contributor to headline inflation in April, accounting for a third of the growth.

The Bank of Canada has been aggressively hiking interest rates in order to tame high inflation. Yet, in a paradoxical twist, higher interest rates have pushed up housing costs, contributing to higher inflation this month.

For example, excluding mortgage interest costs, inflation rose by 3.7 per cent in April compared to the same month last year. With mortgage costs included in the consumer price index, inflation was up 4.4 per cent.

The central bank’s interest-rate hikes have come full circle, feeding back into inflation even though other key drivers like commodities have been coming back down, said Colin Cieszynski, chief market strategist at SIA Wealth Management, in a note.

However, RBC said year-over-year mortgage interest costs are expected to start slowing because of the central bank’s pause on interest rate hikes.

But as for rent, high demand for rental housing could keep prices up. A March report by RBC said Canada's shortage of rental housing could quadruple by 2026, and the fierce demand for rental units has been driving record rent increases.

The higher housing costs come despite house prices declining slightly.

The Canadian Real Estate Association said Monday the actual average home price in Canada reached roughly $716,000 in April, down 3.9 per cent from April 2022.

— With files from Brett Bundale

This report by The Canadian Press was first published May 16, 2023.

RioCan REIT saw strong Q1 retail occupancy levels, rent rates ticking up

Tara Deschamps, The Canadian Press

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The chief executive of one of the country's most prominent commercial landlords says retail occupancy levels and rent rates are ticking up even as many storefronts across Canada sit empty.

Jonathan Gitlin of RioCan Real Estate Investment Trust says retail committed occupancy across his company's portfolio edged up to 98 per cent in the first quarter of the year from 97.4 per cent in the same period a year ago.

Rent per square for new leasing during the period ended March 31 was $28.57, down from $31.40 a year ago, but up from $24.10 in the prior quarter.

The first quarter’s rent per square foot was even higher than the average net rent per square foot of $21.13 that it saw across the rest of its portfolio, he added.

"These exceptional occupancy levels...continue to be driven by intense demand for RioCan's quality retail space, the sort of retail space that simply put is in a short supply," Gitlin said on a Thursday call with analysts.

His remarks came a day after his company revealed its net income for the first quarter amounted to $118 million, down from $160 million a year earlier.

The Toronto-based company attributed the drop to a fair value loss on investment properties which compared with a fair value gain a year earlier.

Revenue for the quarter reached $279.5 million, down from $294.0 million a year earlier, while fair value loss on investment properties was $17.4 million, down from a gain of $35.4 million during the same quarter in 2022.

Funds from operations totalled $131.3 million, or 44 cents per diluted unit, up from $130.6 million a year ago, or 42 cents per diluted unit.

RioCan's portfolio during the quarter was made up of 191 properties, including retail, office and residential space.

Much of it is comprised of "necessity-based retail anchor tenants," including 19.3 per cent grocery, pharmacy and liquor retailers, 14.1 per cent essential personal services and 10.7 per cent value retailers.

RioCan also had 13 spaces leased by Bed Bath & Beyond, the home goods retailer whose Canadian arm is winding down operations after going into bankruptcy protection in April.

There was "immediate and pronounced" demand for the locations, which made up less than one per cent of RioCan's revenue, Gitlin said.

Tenants expressed interest in all the properties almost immediately, but many chose to "take a more secure route" and "snapped up" 10 of the sites from the receiver who ran an auction to sell off Bed Bath & Beyond's assets.

"Retailers were unwilling to risk losing these sites," said Gitlin.

For his company, there was "the ability to fill the spaces with strong tenants, zero downtime and no outlay of capital."

As for the three sites that weren't secured at auction, Gitlin said his company recently finalized a lease for one and is the final stage of negotiations to secure tenants for the remaining two properties.

The tenants are "predictable," he said.

"They are very much strong existing incumbent users within the Canada retail landscape," he said.

"They covet that sort of 20,000 square-foot box and they won't be a surprise to you when we can announce them."

Earlier in the month, Putman Investments Inc., which bought Toys "R" Us' Canadian operations, HMV and Sunrise Records, announced it is opening a new home store retailer in 21 former Bed Bath & Beyond and BuyBuy Baby locations.

Canadian Tire Corp. Ltd. is also acquiring 10 former Bed Bath & Beyond leases to expand its Mark's and Pro Hockey Life banners.

This report by The Canadian Press was first published May 11, 2023

Does unemployment need to go up for inflation to come down?

Holly McKenzie-Sutter, BNN Bloomberg

Unemployment is still hovering near record lows more than a year into the Bank of Canada’s aggressive interest rate hiking cycle, bucking expectations that the labour market would start to soften by now.

The Bank of Canada has put unemployment in its sights as it aims to bring inflation down to a target of two per cent, but resiliency in Canada’s jobs market – even as inflation has begun to drop – has prompted a key question: does unemployment really need to go up for inflation to go down?

Economists who spoke with BNNBloomberg.ca pointed out that inflation has already come down without major job losses – but the question remains over what will happen next.

“It's almost the macroeconomic question of 2023,” said Brendon Bernard, senior economist at Indeed.

“Historically, large drop offs in inflation have often coincided with deterioration in the economy … The question is, is this time different?”

DO PEOPLE REALLY NEED TO LOSE THEIR JOBS?

Economist Jim Stanford, director at the Centre for Future Work, said the answer depends on the situation – but in this case, it seems unlikely, because inflation has already been declining with little change to the unemployment rate.

“In the current setting, I would say absolutely not,” he said. “We don't need to have a recession, we don't need to increase unemployment, we don't need throw people out of work or keep people out of work for inflation to come down, and the proof is, it's happening.”

Stanford said the current inflationary picture has been driven by factors like the global pandemic, supply chain constraints, high corporate profits and the conflict in Ukraine.

“Those were all unique, mostly global and mostly supply-side factors that had nothing to do with the labour market,” he said.

Stanford also noted that wages have lagged behind prices, calling into question fears of a “wage-price spiral” that fed inflation in the 1970s. Stanford said it’s not the same situation today, and he thinks focusing on the labour market is the wrong approach.

“I'm worried that policy may be driven by dogma rather than evidence,” he said.

Bernard said it’s clear that inflation has started coming down without major job losses. The question now, he said, is whether inflation can get back to a normal level – such as the central bank’s two per cent target -- while unemployment stays low.

He also noted that Canada’s economy is closely connected with the U.S.’s – a dynamic that influences inflation beyond domestic labour impacts.

LABOUR MARKET SNAPSHOT

Statistics Canada’s latest jobs report placed the April unemployment rate at five per cent, where it’s held since December. That’s close to the record low of 4.9 per cent recorded in June and July 2022.

The unemployment figure slightly beat economists’ expectations, and the job gains of 41,400 last month blew past the expectations for 20,000.

Meanwhile, inflation has steadily declined from its high of 8.1 per cent in June 2022. Canada’s Consumer Price Index came in at 4.3 per cent in Statistics Canada’s update for March, with the next report expected on May 16. 

WAGE GAINS, JOB VACANCIES

Flat unemployment rate aside, another interesting trend emerged in last month’s jobs report: wage growth surpassed inflation, with a rate of 5.2 per cent compared with 4.3 per cent inflation.

Bernard and Stanford both say there is room for workers’ wages to catch up after falling behind prices over the last few years.

However, the effects on economic conditions are still unknown, Bernard said, pointing out that job vacancies posted on Indeed.com have come down compared with last year, suggesting worker shortage and related hot labour market have cooled slightly.

“It's kind of surprising that (wage growth) has remained quite strong, even as job vacancies have cooled. We'll see where things go from there,” he said, adding that slowing job vacancies could eventually show up in elevated unemployment numbers.

Stanford said he sees it as “only fair” that workers’ wages begin catching up, and he sees room for a few years of wage gains without disruptive economic effects – and he made the case that wage gains could even have a disinflationary effect on corporate profits.

However, Stanford said he’s concerned that the wage growth trend could result in the Bank of Canada taking closer aim at the labour market in its monetary policy approach. 

WHAT HAPPENS NEXT?

The central bank’s key interest rate has risen by 4.25 percentage points since 2022 to the current rate of 4.5 per cent. Stanford said typically, interest rates rising so dramatically has always caused a recession, but “in a way, we’re in uncharted territory.”

“I don't think we're out of the woods yet, but I'm encouraged at how consistent the labour market has been,” he said.

Bernard, too, said the labour market strength has been impressive, but he warned that people should temper their expectations, as interest rate increases can historically take a long time to appear in jobs data.

“It is tempting to be hopeful that, 'Hey, maybe we could be in for a soft landing, and there's some reasons why that might be the case,'” he said. “But we still need to pump the brakes on just being fully optimistic.”

Overhaul permitting process in Canada to keep up with U.S., TC Energy CEO urges

James McCarten, The Canadian Press

Canada might be outmatched by the U.S. on raw spending power, but retooling the way Ottawa signs off on infrastructure projects could help it gain ground in the race to build North America's green economy, industry leaders say.

But the federal government had better hurry: lawmakers on Capitol Hill already have the same idea. 

Resource companies are less attracted to monetary incentives than they are to the decidedly less sexy idea of regulatory consistency and predictability, TC Energy president and CEO François Poirier said Monday.

Given the choice of whether to deploy resources in Canada, the U.S. or Mexico, "the size of the incentives is not the determining factor in my decisions," Poirier told a gathering of business executives in Washington, D.C.

Factors like consistent timelines and permitting criteria for any given project are decidedly more attractive to stability-craving companies than the multibillion-dollar subsidies on offer in the U.S., he said. 

And it may only be days or weeks before the U.S. catches up, if a permitting reform bill from West Virginia Sen. Joe Manchin ends up part of any forthcoming deal between Republicans and the White House on the debt ceiling. 

"While Canada and Mexico are pondering how to achieve parity or close to parity with the U.S. to attract capital to be invested in energy, the U.S. has already moved on to the realization that permitting reform is critical," Poirier said.

"My advice to our Canadian government and to the government in Mexico would be to provide as much certainty as possible with respect to permitting."

President Joe Biden is scheduled to meet with House and Senate leaders Tuesday to talk about the impasse over the debt ceiling, a legislative threshold that restricts the government's borrowing power.

The U.S. could hit that limit early next month, fuelling the prospect of a default, a catastrophe that would plunge the country into a deep recession, end millions of jobs and shake economic foundations around the globe. 

Media reports suggest the contours of a deal could be taking shape this week — a deal that would include passage of Manchin's permitting reform bill, which would streamline U.S. approvals for energy and infrastructure projects.  

"If we are to achieve our ambitions for emission reductions by 2030, we only have a couple of years where we can make meaningful change and implement that change in time," Poirier said. 

"Speeding up regulatory processes — but also, more importantly, making them predictable and consistent among the three jurisdictions — is really what's necessary for all of those countries who are competing with the U.S."

A unified economic front was a key theme of the North American Business Summit, a trilateral gathering of executives hosted by the Business Council of Canada, the U.S. chamber and the U.S.-Mexico Foundation. 

Central to that goal must be ensuring the continued survival of the U.S.-Mexico-Canada Agreement, which replaced NAFTA in 2020, said U.S. Chamber of Commerce CEO Suzanne Clark. 

The USMCA, known in Canada as CUSMA, is as much about Western values as it is about growth, Clark said as she urged her audience to ensure the agreement survives. 

Unlike its predecessor, the USMCA includes a sunset clause that requires all three countries to sit down for a comprehensive review every six years to ensure all parties are still satisfied. 

That deadline is still three years away, but the time is now to stand up and defend the agreement — not just for shared economic prosperity, but for the sake of democracy itself.  

"If we, together, don't define global leadership — if we don't lead on global challenges and meet the opportunities of the future — others like China and Russia will fill that void," Clark said. 

She acknowledged the ever-present "irritants" that continue to prompt questions about just how committed the three countries are to both the letter and the spirit of the deal. 

In the 33 months since USMCA went into effect in July 2020, 17 disputes have been launched, compared with a total of 77 initiated over the course of NAFTA's 25-year lifespan.

The U.S. remains unhappy with how Canada has allocated the quotas that give American dairy producers access to markets north of the border. Canada and Mexico both took issue with how the U.S. defined foreign auto content. And Canada and the U.S. oppose Mexico favouring state-owned energy providers.

"We have to resolve these issues not only to prove that USMCA works, not only to fill the potential of the deal, but also — most importantly — to prove that we can do it, that we are committed to making this agreement strong," Clark said. 

She didn't mention Donald Trump by name, but the former president, the principal instigator of the effort to renegotiate NAFTA, is already the perceived front-runner for the 2024 Republican nomination. 

Whatever the threat to the USMCA, be it an unfriendly U.S. administration or a politically fraught review process, it's vital that "the economic case is indisputable, that no one can say this agreement isn't maximizing North American competitiveness." 

The agreement underpins the ability of the three countries to collaborate on priorities like food and energy security, resilient supply chains, transparency, stability and due process, she added. 

"When these factors are not present, investment can't thrive, the economies cannot grow, jobs cannot be created and we do not enjoy prosperity," Clark said. 

"When they are absent, corruption thrives, ambiguity reigns, investment dollars flee and tax revenues plummet."

This report by The Canadian Press was first published May 15, 2023.

Canadian plywood makers seek duties as cheap Chinese rivals carve out half the market

Darryl Greer, The Canadian Press

It's been years since Carlos Zarate and others in Canada's decorative plywood industry started telling the federal government about a growing problem in their business. 

The president of the Canadian Hardwood Plywood and Veneer Association warns of an industry in decline, but not due to falling demand for things like kitchen cabinets, decorative wood panels, furniture, and other non-structural wood products. 

Zarate, who's also president of Industrie Ergie Inc. in Victoriaville, Que., said the association's members have seen their market share in Canada drop because they are unable to compete with plywood products imported from China at prices domestic producers could never hope to match, let alone beat. 

The industry wants duties imposed on Chinese exporters, who they say enjoy unfair advantages such as heavy government subsidies and access to illegally harvested wood, flooding global markets with cheap goods that drastically undercut competitors.

But they've been dumbfounded by their inability to convince Canadian authorities to crack down on the Chinese products, which have been subject to hefty duties in the U.S. since 2017. 

Canadian industry players complained to the Canada Border Services Agency about the situation in April 2020, urging an investigation into dumping and subsidies for their competitors in China. 

"In terms of pricing, Canadian producers are consistently undercut by dumped and subsidized Chinese imports. Lost sales and price reductions have caused significant injury to Canadian producers, and over time, some customers have simply stopped asking Canadian producers to compete with Chinese import pricing," they told the CBSA in a submission. 

"Producers must increasingly look to other export markets to sell their products. The primary export market is the United States, which is now protected against dumped and subsidized Chinese imports."   

But the agency's investigation didn't go the way Zarate had hoped, and the association appealed in Federal Court about the decision of the president of the CBSA to drop the investigation.  

The Federal Court of Appeal upheld the decision in April in another blow to the industry in Canada, Zarate said. 

Zarate said the industry has been in contraction, a process that accelerated in the last 15 years when Chinese exporters ramped up their presence in Canada. They now account for more than half the country's market share. 

He said Canadian firms find themselves competing in a "disrupted market," where Chinese-made products cost half or even a third of the price of those made in Canada. 

"Even before the case, we've seen many Canadian plywood mills and veneer mills disappear throughout the years because they could not compete against the Chinese imports," he said. 

Ottawa-based trade lawyer Gordon LaFortune acted for several Chinese companies that came under scrutiny by the Canada Border Services Agency. 

He said his clients were able to show that their costs weren't distorted as the Canadian industry players claimed, meaning there was no "particular market situation" that justified the imposition of duties on their products. 

"The CBSA is not a shrinking violet. If there was a shred of evidence that showed dumping, if there was a shred of evidence they could have relied on to find a particular market situation, (they) would have done it, but they didn't," LaFortune said. 

The association and its members said in the complaint to the border agency in 2020 that there had been "injurious dumping and subsidizing" of products by Chinese producers.

The Canadian companies tried to convince the agency that the market in China was distorted by illegally harvested wood and heavy government control and subsidization, hoping duties would be slapped on imported products as a result. 

The agency identified hundreds of China-based firms in the market, but few responded to its requests for information during the probe. 

Ultimately, the agency did not find the existence of a "particular market situation" in the decorative plywood space involving a number of Chinese firms, though it did find some were indeed dumping product and receiving subsidies.

At the same time, the Canadian International Trade Tribunal began an inquiry stemming from the domestic producers' complaint to the CBSA.

In February 2021, the tribunal determined that dumping and subsidizing decorative plywood products had "not caused injury and are not threatening to cause injury to the domestic industry."

The findings of both the CBSA and the tribunal, and more recently the Federal Court of Appeal, have "dumbfounded" those working in Canada's decorative plywood industry, said Jeff Bromley, chair of the United Steelworkers' Wood Council. 

The union has a few hundred members working in the decorative plywood industry in Ontario, Bromley said, and the United States imposed anti-dumping and countervailing duties on Chinese-made products several years ago.

"The fact that the Americans were successful in establishing countervailing duties on the same product and we were not, we're a little flabbergasted to be quite honest," Bromley said. 

In 2017, the U.S. International Trade Commission found the Chinese imports were harming American producers and it imposed anti-dumping and anti-subsidy duties of more than 180 per cent based on industry complaints similar to those of Canadian firms today.  

Canadian labour standards and wages are much higher compared to China, Bromley said, and cheaply produced decorative plywood products imported into Canada are "harming Canadian jobs." 

"We can't compete with what they're doing, how they're producing the products," he said. 

For the union and its members, Bromley said the issue comes down to protecting well-paying Canadian jobs that produce products according to high standards of sustainability.

LaFortune, meanwhile, said he understands why domestic producers claim to be "hard done by," but imposing duties on products imported from China wouldn't only affect the foreign companies that make them. 

"What about the rest of the Canadian industry? What about the construction workers who are installing hardwood and plywood? What about the companies that are buying it? Distribute it? The manufacturers who use it in furniture? Are we gonna impose additional costs on them?," LaFortune said. "Because that's what will happen."    

This report by The Canadian Press was first published May 15, 2023.

Binance to stop serving Canadian market, blames new stablecoin guidance

Cryptocurrency exchange giant Binance says it will be withdrawing its services from Canada.

In a tweet, it blamed its decision to depart the country on new guidance related to stablecoins and investor limits provided to crypto exchanges.

Binance says the regulations have made the Canadian market "no longer tenable" for the company.

It says it put off the decision as long as it could while it explored other avenues, but recently found there are none.

Binance promised to send Canadian users emails discussing how the move will impact their accounts.

The company's departure from the market comes after the Canadian Securities Administrators announced stricter requirements for cryptocurrency companies around cash and asset storage and the purchase and deposit of stablecoins.

"While we do not agree with the new guidance, we hope to continue to engage with Canadian regulators aimed at a thoughtful, comprehensive regulatory framework," Binance said in a tweet. 

"We are confident that we will someday return to the market when Canadian users once again have the freedom to access a broader suite of digital assets."

This report by The Canadian Press was first published May 12, 2023.

Glencore and Teck take fight to Barcelona with investor pitches

Thomas Biesheuvel, Bloomberg News

The chief executive officers of Glencore Plc and Teck Resources Ltd. took their battle for the future of the Canadian miner to Barcelona, offering competing pitches to investors.

Glencore boss Gary Nagle and his Teck counterpart Jonathan Price were both speaking at Bank of America Corp.’s mining conference in the Spanish city on Tuesday. Nagle highlighted the dependence of Teck’s copper business on its coal mines for financing, while Price countered that his company is looking at ways of raising fresh capital as part of new plan it’s working on.

The companies have spent the past five weeks in a bruising fight to win over Teck investors, after its board and controlling shareholder publicly rejected Glencore’s proposal. The Swiss commodities giant offered to buy Teck for US$23 billion and then create two new companies combining their respective metals and coal businesses.

Teck cancelled a vote on its plan to spin off its coal business just hours before a shareholder meeting, admitting that it didn’t have the support it needed. The company said it would work on a new plan to split out coal, and once again dismissed Glencore’s proposal.

Teck has one of the best copper growth pipelines among all the big miners, but has been depending on the profits from its coal business to fund it. After shareholders rejected its plan to split coal, but keep most of the profits, the company is now trying to find a new way forward.

It’s a dilemma that Nagle seized upon, saying Teck would have to ask shareholders for more money to fund the development of its copper projects, according to a summary for his presentation by Bank of America. Nagle also said there would be “blood on the streets,” should Teck shareholders be forced to exit a standalone coal business at a steep discount. Glencore has offered to buy out Teck holders from the coal company it has proposed creating. 

Price, speaking later, said Teck had heard nothing more from Glencore on a new proposal. The company believes it has strong support from its shareholders to press ahead with a simpler split of its coal business, he said.

Price said the company is “working around the clock” on a new plan since shareholders rejected its earlier proposal. The CEO said it has been re-engaging with counter parties on the coal business and also looking again at its options for capital markets.

Glencore has said it’s willing to increase its offer and go directly to shareholders should Teck refuse to engage, but has so far not done so.