A reminder that a year ago our inflation rate rose to 4.4%, and the BoC was still calling it transitory and held rates steady at 0.25%
Quote:
In setting monetary policy, the Bank seeks to look through such
transitory movements in CPI inflation and focuses on a set of “core”
inflation measures that better reflect the underlying trend of inflation.
In this sense, these measures act as an operational guide to help the
Bank achieve the CPI inflation target. They are not a replacement for
CPI inflation.
The Bank views the risks to the outlook for inflation to be roughly
balanced around its updated projection. However, with inflation above the
top of the Bank’s inflation-control range and expected to stay there for
some time, the upside risks are of greater concern. While the Bank views
elevated inflation as transitory, the realization of additional upside risks
or unanticipated persistence of existing pressures could lead to a rise in
inflation expectations along with more pervasive labour cost and inflationary
pressures.
Also note that the bank's most recent release has us back to 3% by end of 2023 with current rate hikes.
Quote:
The Canadian economy is now clearly in excess demand, and inflation is high and broadening. The Bank is projecting inflation to decline to about 3% by the end of 2023, and to return to the 2% target by the end of 2024.
Let's check back in October 2023 and see where we are.
As someone who does financial statement forecasting... these bank economists know more than pretty well anyone.. but their future predictions tend to leave a lot to be desired.
The feds (US) transitory inflation call is seen as one of the worst calls in modern history. I feel both the Feds and BoC were in full denial about the side effects of historically low credit combined with mass spending on the economy, kept the floodgates of cheap credit open for way longer then warranted and exacerbated inflation. We saw it in the housing market which went absolutely nuts in late 2021 and early 2022
Everyone still has their jobs, and it's the same people who are making the calls of 2023 inflation going down as well.
Completely out of touch with the realities on the ground and the mindset. We also need to understand that the 2008 credit crisis was largely caused by poor bank policies that allow the crisis to occur in the first place and not being able to foresee the impending doom that was created due to letting the market resolve itself.
But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.
^ You do recognize that for basically the last decade the issue was deflation and not inflation though, right? Like it's easy to look back and criticize this in hindsight, knowing that Russia invades Ukraine and supply issues persist. How many people had that on their card at this time last year? Basically no one.
And history doesn't repeat in one important area. Powell has made a number of references to 1974. That was important because the fed had hiked rates and inflation came down...but as soon as they cut rates it spiked again and we faced a decade of inflationary pressures. They are well aware of that lesson, and I don't think that they repeat that mistake again.
Talking about the inability to forsee bad policies having very negative outcomes.
The 2008 crisis and 2009 recession is far different then what we are facing now. In 2009 governments spent their way out of a crisis. In this case, they have to do the exact opposite.
This video I linked is dated Nov 2021, far before any Russian invasion. Our inflation woes were happening regardless of the war in Ukraine, it just exacerbated it (which wouldn't be as much of an issue had policies not parroted the term transitory for so long).
Talking about the inability to forsee bad policies having very negative outcomes.
The 2008 crisis and 2009 recession is far different then what we are facing now. In 2009 governments spent their way out of a crisis. In this case, they have to do the exact opposite.
The pundits said the same thing at that point though. There was plenty of talk that they will never be able to get that money out of the system, gold as an inflation hedge was going to $5000, we're going to see hyper-inflation and everything else. Literally none of that came to pass.
I will say that I won't be surprised if we see the central bank(s) raise their inflation target to 3% from 2% though. I think that is coming, that Canada won't be alone in that, and it's going to be interesting in how they start to make that move.
The pundits said the same thing at that point though. There was plenty of talk that they will never be able to get that money out of the system, gold as an inflation hedge was going to $5000, we're going to see hyper-inflation and everything else. Literally none of that came to pass.
I will say that I won't be surprised if we see the central bank(s) raise their inflation target to 3% from 2% though. I think that is coming, that Canada won't be alone in that, and it's going to be interesting in how they start to make that move.
I think raising the target to 3% any time soon would be counterproductive because it would cement higher inflation expectations in the market.
And history doesn't repeat in one important area. Powell has made a number of references to 1974. That was important because the fed had hiked rates and inflation came down...but as soon as they cut rates it spiked again and we faced a decade of inflationary pressures. They are well aware of that lesson, and I don't think that they repeat that mistake again.
And it's not just interest rates. Even in the '70s when they did raise rates, they were still creating money like crazy which is what primarily drove inflation. This is Canada, but the US was much the same; M2+ increase by year:
In the '70s they increased the money supply by 5x in a decade, so obviously there was going to be high inflation no matter what the interest rates were. Basically as soon as they slowed that down in 1982, inflation subsided soon after.
Now compare that to the last decade (which some like to suggest has been some money printing bonanaza):
That's not even a 100% increase (basically 1/4 of what happened in the '70s). And after the one-time bump in response to COVID, money creation has slowed considerably again. As long as they don't turn the taps on again, we're likely just in a temporary (or perhaps transitory) bump as the large increase from 2020 keeps working its way through the system. But as liquidity dries up, inflation should temper. It might not get back to the target range right away because of geopolitical issues, but that's beyond the central bank's control so it has little to do with monetary policy.
The pundits said the same thing at that point though. There was plenty of talk that they will never be able to get that money out of the system, gold as an inflation hedge was going to $5000, we're going to see hyper-inflation and everything else. Literally none of that came to pass.
I will say that I won't be surprised if we see the central bank(s) raise their inflation target to 3% from 2% though. I think that is coming, that Canada won't be alone in that, and it's going to be interesting in how they start to make that move.
You understand why none of that came to pass right? It most certainly wasn't by sitting on their butts. The credit crisis was very very real and we got dangerously close to total collapse.
Your post would be akin to laughing about how Y2K was nothing, when in reality there was years of dedicated work to prevent the worst case scenario from occuring.
Likewise, right now global banks are scrambling to right the ship now and likely overcorrecting, but inflation warnings were left unheeded for way too long. What we are facing today did not need to happen the way it has.
Also note that the bank's most recent release has us back to 3% by end of 2023 with current rate hikes.
Let's check back in October 2023 and see where we are.
I'd wonder whether part of BOC's plan last year had to do with what other countries were doing as well. Exchange rates would rise negatively in our favor if the borrowing Canadian rates rose while foreign rates didn't move, right?
I'd wonder whether part of BOC's plan last year had to do with what other countries were doing as well. Exchange rates would rise negatively in our favor if the borrowing Canadian rates rose while foreign rates didn't move, right?
Canada has little choice in its monetary policy in truth, we pretty much have to mirror the US specifically
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I'd wonder whether part of BOC's plan last year had to do with what other countries were doing as well. Exchange rates would rise negatively in our favor if the borrowing Canadian rates rose while foreign rates didn't move, right?
Correct. If we strayed from other banks it would negatively hurt Canada short term especially in relation to the US, but would help us long term. Good monetary policies in the mid to late 2000s is why Canada had the least severe recession out of the G8. unfortunately, despite our good policies back in 2008, we still got taken along with the globalized tidal wave.
That's also why BoE blinking first is likely to cause Britain to fall in a precipice of inflation, but they will look stronger in the short term.
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But that isn't quite a fair statement to make. When BoC said interest rates would be low, it was prior to the war in Ukraine. The war threw a mess of spanners into the works. Literally no one could've predicted it.
It was obvious to everyone that ultra low interest rates, massive government deficits/spending, and all sorts of unprecedented stimulus was likely to lead to inflation.
It was also only a matter of time until a Ukraine level crisis occurred. Crises on that level occur once every 5 years at least. You can't honestly believe that the BoCs predictions were based on the fact that humanity had evolved beyond conflict and economic bubbles. Were we going to come out of Covid and have everything be nothing but smooth sailing?
These are the exact same people who, a year ago, were telling Canadians to get massive mortgages as interest rates would stay very low for a long time.
Thankfully the stress test for the most part did its job.
The government could introduce legislation on capping groceries and gas etc. But why do that when they can jack up interest rates crazily since its working so well already?
The government could introduce legislation on capping groceries and gas etc. But why do that when they can jack up interest rates crazily since its working so well already?
I see someone never learned about Supply and Demand in school.
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I see someone never learned about Supply and Demand in school.
Our food supply and specifically our grocery stores are not in a competitive Marketplace where supply and demand functions properly. We have two companies that basically own almost all the grocery stores in the country, and profits have gone up way past inflation. There's actually some really great journalism going on about this, I would encourage you to check it out
Our food supply and specifically our grocery stores are not in a competitive Marketplace where supply and demand functions properly. We have two companies that basically own almost all the grocery stores in the country, and profits have gone up way past inflation. There's actually some really great journalism going on about this, I would encourage you to check it out
Please post em!
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The competition bureau must be listening to Whiteout's thoughts...
Quote:
Canada's Competition Bureau says it is launching a study on competition in the grocery industry.
The agency said in a press release Monday that it plans to investigate various issues in the grocery industry, "with the goal of recommending measures that governments can take to help improve competition in the sector."
Our food supply and specifically our grocery stores are not in a competitive Marketplace where supply and demand functions properly. We have two companies that basically own almost all the grocery stores in the country, and profits have gone up way past inflation. There's actually some really great journalism going on about this, I would encourage you to check it out
I'd love to see this journalism as well. The reality is that for Loblaws the long-term growth rate of the stock is 1.7%. I can already hear you saying that the share price is not indicative (I disagree, but we can dig a little deeper!)
Their sales/revenue were up about 6% from December 2020 to December 2021. The estimate for 2022 shows an increase of about 3.2% The 5 year average for them in terms of sales is 2.8% growth per year. Nothing egregious there. They have increased their net income and earnings per share, but that's not indicative of them gouging on price. They've reduced the number of shares outstanding by about 3.5% over the past 5 years, so you have to consider that when you look at the EPS.
And in case you think Loblaws is just finding a way around this, Empire is not in a different boat. They grew sales from 2021-22 by about 6.3% as well and the projections are for 3.5% into 2023.
It's just not the goldmine that people try to imply. Frankly, you also have to remember that (particularly in the case of Loblaws) you're not only talking about groceries here. Pharmacy is a significant driver for them, and Shoppers makes up about 27-28% of that revenue.
