 Monday, November 13, 2023 | | | Welcome to Mind Your Business ! Consider this your weekly guide to understanding what’s happening in the worlds of economics, business and finance. By Peter Armstrong | | |  | Where is inflation headed now? (Andrzej Rostek/Shutterstock) | | | I sometimes feel like my job is just filling time between inflation reports.
So much of everything else is tied up in what prices are doing. Interest rates, economic growth, job creation.... there's a pretty straight line from each of those back to what the consumer price index tells us is happening.
This week, we'll get the latest U.S. inflation numbers. We get Canada's CPI next Tuesday.
In both countries, the central banks have indicated a willingness, if not an outright desire, to leave interest rates where they are.
Last week, in the Bank of Canada's Summary of Deliberations, we learned that some on the governing council worry rates aren't yet high enough.
"Some members felt that it was more likely than not that the policy rate would need to increase further to return inflation to target. Others viewed the most likely scenario as one where a five per cent policy rate would be sufficient to get inflation back to the two per cent target, provided it was maintained at that level for long enough," wrote the bank in the summary.
The next day, senior deputy governor Carolyn Rogers gave a speech entitled "Financial Stability in a World of Higher Interest Rates."
So, maybe rates rise more — but almost assuredly rates stay higher than almost anyone would like for longer.
But in the end, all that depends on what the inflation numbers say.
So far, both the U.S. and Canadian economies are doing better than most. | | |  | | | That chart measures "real" GDP, so it shows economic growth in inflation-adjusted figures.
Growth in Canada, as we all know, has flattened considerably. The most recent GDP figures show this country is flirting with a recession.
Much of that is easy enough to get your head around. As interest rates rise, the economy slows, people buy less stuff, employers hire fewer staff and eventually start laying people off.
But the outsized impact of real estate is amplifying any downturn.
There's an old joke that Canada's economy is really just some banks, telcos and energy companies in a trench coat.
But that doesn't factor in the real estate industry.
ReMax says that sector makes up a huge chunk of Canadian GDP.
"As a share of the GDP, real estate makes up more than 20 per cent. Moreover, when this measurement is isolated on a quarter-over-quarter basis, housing accounted for close to half of GDP growth in the first quarter of 2022," wrote the real estate company last month.
Rising interest rates are slowing sales, which in turn slows mortgage originations. | | |  | | | And again, all that ties directly back to inflation.
If price growth gets back to target, there will be pressure on the banks to start cutting rates again.
Desjardins Economics thinks that may happen as early as next spring.
Desjardins believes the Bank of Canada's key overnight lending rate (currently at five per cent) will fall to 3.5 per cent by the end of next year, and that it will get all the way back to 2.5 per cent by 2025.
What do you think? Will inflation continue to fall this autumn (see what I did there?) Where is inflation headed and how quickly will interest rates follow suit?
As always, send me a note.
My email is: peterarmstrong@cbc.ca | | |  | | U.S. inflation numbers will be released this week. Canadian CPI numbers for October are set to be unveiled on Tuesday. | | | | | | We'll get the latest Canadian home sales numbers on Wednesday. Sales volumes and prices have fallen sharply as interest rates have risen. | | | | | | On Wednesday, we will get the latest stats on wholesale trade in September. We will also get a look at the manufacturing sales and orders for that month. | | | | | Three things to read, watch and listen to this week | | |  | People celebrate after SAG-AFTRA agreed to a deal ti end the 118-day actors strike (Mario Anzuoni/Reuters) | | | 1. What did we learn from the Hollywood strikes? | | | In a lot of ways, the Hollywood strikes have been a microcosm of the broader economy.
They were the biggest and loudest disruptions of what some called the Summer of Strikes. All those labour disputes, from autoworkers to screenwriters, were a chance for workers to reset their relationship with their employers.
Their industries are changing. Inflation had eroded their wages and most of these groups saw this summer as a last chance to set things right.
So, did the Hollywood strikes work?
The writers had already reached an agreement. Last week saw the actor's guild get its own deal done.
The big issues are around artificial intelligence. Could studios take a pile of Nora Ephron or Cameron Crowe scripts, feed them into a large language model and ask an AI bot to spit out a new script based on their work?
Could the studios take visual renderings of an actor and remake them to create a whole new character in a new movie?
Here's how the Associated Press framed the deal.
"The union says the deal is worth more than a billion dollars and they've 'achieved a deal of extraordinary scope' that includes compensation increases, consent protections for use of artificial intelligence and actors' likenesses and includes a 'streaming participation bonus,'" wrote the AP.
The negotiating team for the studios released a statement saying the deal provided the biggest contract-on-contract gains in the history of the union.
But the fact of the matter is, we will have to see how the agreements actually work in practice.
The wonderful podcast The Town sat down with some of the key players to walk through the provisions and what they'll mean going forward.
The Town host Matt Belloni spoke with the SAG-AFTRA chief negotiator, Duncan Crabtree-Ireland, about why it took six long months to end this strike.
"I really believe what we've been fighting for, for our members, is absolutely worth what we've all been through, in the sense that making a deal on lesser terms... is not something we could have done," he said.
The whole episode is a glimpse into the weeds of what happened, and what may happen now.
Check out the episode of The Town here. | | | 2. Dumb phones | | | I've used this space to complain about my smartphone several times before. I've tried a thousand ways of cutting down on my screen time.
And a thousand times, I find myself staring aimlessly at Wordle or Instagram or searching for some arcane fact.
Part of me dreams about throwing the dumb thing into the lake and going back to using the old rotary dial phone on my desk.
Well, our friends at the CBC Radio program Cost of Living have a solution.
Producer Jennifer Keene had a wonderful segment on the show this weekend about, you guessed it, dumb phones.
They're technically called "feature phones."
"The irony of calling the phone a feature phone is that it doesn't have a whole lot of features at all," technology reporter Carmi Levy told Keene.
Feature phones don't offer much: calling, texting, some basic map functions. But they're cheap.
Keene interviewed Adrian Holt, a Grade 6 teacher who recently bought a flip phone.
"When I was really honest about it, I was using [the smartphone] a lot. I'd wake up in the morning, spend a good 15 to 20 minutes every single day looking at stuff that was, you know, not meaningful to what I needed to be doing on that day. I'd end my day the same way," he told Keene.
Fifteen to 20 minutes? And he bought a flip phone? I've honestly disabled my screen time function so I don't descend into self-loathing and despair. But I guarantee you, it's more than 20 minutes a day.
Hopefully that Cost of Living segment will push me to do something about it.
Check out the Cost of Living segment here. | | | 3. TED Talkin' | | | When I was first thinking about building this section of the newsletter, I was worried it would just become a constant barrage of TED Talks.
I love TED Talks. I watch them when I should be writing. I listen to the TED Talks Daily podcast when I should be working on deadlines.
But I have avoided sharing too many TED Talks.
Until now. One of you shared a TED Talk by the Irish economist David McWilliams that had somehow slipped my obsessive gaze.
In it, he says a normal economist would come armed with charts and graphs and maps, the tools of his trade.
"But I’m an Irish economist, so I’m only going to come here armed with some lines and verses of poetry," he says.
He starts by quoting the (Irish) poet W.B. Yeats. The Second Coming was written in 1919 and it famously describes a world falling apart:
"Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world..."
Remember, this was written in 1919. The Great War was over, peace had been restored to a weary world. And yet Yeats saw trouble.
McWilliams says all the economists back then were saying the world would go back to normal and everything was finally going to be OK.
Within a few years, Benito Mussolini was in power in Italy. Joseph Stalin was on the rise in the Soviet Union and Adolf Hitler had just staged a putsch in Munich.
"So what's always bugged me is, why did the poet get things so right at a tipping point, and the economists get things so wrong?" asks McWilliams.
He says the artists, poets and musicians always seem to give themselves permission to think differently.
The TED Talk was done in Vancouver, so he quoted the Leonard Cohen line about how there's a crack in everything, and that is how the light gets in.
"What Cohen was saying to us was, 'Look for the cracks, look into the cracks.' That's where we'll see the big picture," he says.
McWilliams says we are in a precarious moment in the world. And this TED Talk was done in April. The world has grown immensely more precarious since then.
He says at moments like this, the institutions risk falling into groupthink and confirmation bias.
"So my idea, that I think is worth spreading, is the following: if you want to understand the world a little bit more clearly, listen less to my tribe, the economists, and listen to Yeats's tribe, the poets," he says to thunderous applause.
Check out McWilliams TED Talk here. | | | How the economy looks beyond Bay Street | | | China slips into deflation | | | China's rise has loomed over every aspect of geopolitics for decades. It rose to become the world's second-largest economy. It dominated trade talks and drew billions upon billions in foreign investment.
But this has not been a good year for the Chinese economy. GDP growth has slowed by much more than experts had forecast.
Population numbers were supposed to be bleak, but they, too, have come in much more troublesome than believed.
Giants of the Chinese real estate sector are in very real trouble of collapse.
And now, prices are falling. | | |  | The change was largely driven by a steep drop in food prices. They were down four per cent in October, after a 3.2 per cent decline in September.
Pork prices, a staple in China, fell a staggering 30 per cent year over year.
Deflation is a terrible cycle — incredibly painful and hard to get out of. It can feed on itself and chew up an economy while it does.
But some experts say China's not necessarily in that kind of trouble... at least not yet.
The Wall Street Journal quoted Capital Economics on that:
“Chinese inflation looks set to remain low for the foreseeable future. But we don’t think the country is about to enter a deflationary spiral,” wrote economists from Capital Economics. They believe core inflation should return to about one per cent in the first half of next year.
What do you think?
Drop me a line at peterarmstrong@cbc.ca. | | | Share this newsletter | | or subscribe if this was
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