These are stories Report on Business is following Friday, March 20, 2015.
Lazy, hazy, crazy days of summer
Expect to soon pay more for everything from beer to patio snacks.
Which could put an interesting twist on the summer we're all desperately awaiting after this harsh winter.
In fact, this morning's inflation report from Statistics Canada drives home the point, with sharp increases in prices of certain food.
In a study on the impact of a weaker loonie on consumer prices, Toronto-Dominion Bank economist Diana Petramala warns that Canadians can expect higher prices across a range of goods.
"While the downward pull from lower gasoline prices was the key theme playing out on Canada's inflation landscape in 2014, the emerging big story this year appears to be the meaningful upward pressure on prices due to the weak Canadian dollar," Ms. Petramala writes.
"By our calculations, the lower loonie will boost overall CPI inflation by a hefty 0.8 percentage points in 2015," she adds, referring to the consumer price index.
"Indeed, without this currency impact, it is likely that overall headline inflation would be close to zero and core inflation would be running significantly below the Bank of Canada's (BoC) 2-per-cent target."
The drop in the dollar means imports cost more. And, traditionally, Ms. Petramala says, businesses pass on those higher costs to the consumer.
In January alone, she estimates, the weaker loonie bumped up the annual inflation rate of 1 per cent by 0.6 of a percentage point. That overall annual rate held steady in February, Statistics Canada said today, and Ms. Petramala calculates that dollar-sensitive prices accounted for 0.9 of a percentage point.
And it won't stop there, Ms. Petramala warns, because the Canadian dollar is likely to fall further, to about 75 cents U.S. based on some forecasts and 77 cents based on TD's projections.
Not only that, but there's a lag of somewhere from four to six quarters where the impact is concerned, so "the full effect of the weaker exchange rate is likely to be felt through the first half of 2015" on most items.
Add to that the fact that retailers and wholesalers will seek to "restore margins" eroded by the drop in the loonie.
Among Ms. Petramala's findings:
Food prices, which in January climbed 5.5 per cent from a year earlier, tend to be impacted the most. That includes fruits, vegetables and packaged food, like the type you might serve in the backyard which will exhibit "visible price pressures" this year.
The impact on clothes and shoes is a fast one, and Ms. Petramala expects prices to rise by 2 per cent this year.
Prices for goods like toilet paper and toothpaste, both of which you can't live without, are "highly sensitive" to changes in the loonie and could rise by 6 per cent.
And then there's the things we love when we're not in the bathroom, such as computers, DVDs, books and movies.
And, finally, the patio.
Part of the rise in beer prices, which rose in February by 4.4 per cent from a year earlier, has been tied to higher barley costs.
"However, this not the full story, as the same rise in beer prices is not evident in the U.S. market," Ms. Petramala says.
"Historically, beer prices have not been highly sensitive to currency movements. However, the beer industry has changed considerably over the last decade, with the purchase of Canadian big beer makers by foreign companies."
Having said that, prices of wine aren't rising, probably because most of the imports are from Europe and South America.
A weaker dollar, by the way, can also boost prices at restaurants, Ms. Petramala says. So whether it's your patio or the restaurant patio, you're going to feel it.
Will we make up for all this at the gas pump?
"The price of gasoline has fallen 38 per cent in the U.S., but is down just 23 per cent in Canada," Ms. Petramala says.
"Part of the difference reflects higher taxes on gasoline in Canada, but some of the lesser drop will reflect the weaker Canadian dollar."
Today's reading from Statistics Canada showed store-bought food prices up 4.3 per cent in February from a year earlier. The cost of meat shot up 12.4 per cent, fresh vegetables 8.4 per cent and fresh fruit 3.5 per cent.
The rises were slower than those in January, but still high. Prices for clothes also climbed, as did those for books and such.
Gasoline prices, of course, fell, by almost 22 per cent.
If you strip that out, prices rose 2.2 per cent.
On a month-to-month basis, consumer prices climbed 0.2 per cent in February, having dropped in the three previous months.
So-called core inflation on an annual basis, which strips out volatile items and helps guide the Bank of Canada, slowed to 2.1 per cent last month from January's pace of 2.2 per cent.
"There were some signs of pass-through from the weaker Canadian dollar, as travel services flew 12.1-per-cent higher and furniture prices rose 3.3 per cent, one of the largest monthly increases on record," said senior economist Benjamin Reitzes of BMO Nesbitt Burns.
"Look for more C$-related price increases in the coming months."
- Inflation holds at 1% as cheaper gas weighs on prices
- David Parkinson: Falling loonie staves off deflation threat as core inflation holds steady
- The dark side of a weak Canadian dollar: Prices for food, clothes, books shoot up
- Canada's January retail sales slide more than expected
Up, up and away
The use of drones by Amazon.com Inc. is raising some interesting issues this morning.
Late yesterday, the Federal Aviation Administration in the United States gave the online giant permission to test drones outside, albeit with restrictions.
"Under the provisions of the certificate, all flight operations must be conducted at 400 feet or below during daylight hours in visual meteorological conditions," the FAA said in a statement, referring to what it calls unmanned aircraft, or UAS.
"The UAS must always remain within visual line-of-sight of the pilot and observer," it added.
"The pilot actually flying the aircraft must have at least a private pilot's certificate and current medical certification."
It's the latest in the e-commerce company's plans to deliver purchases fast and easy.
"Shares of UPS and FedEx are left exposed by the use of drones by their biggest client that could someday eclipse traditional delivery methods," said CMC's Mr. Lawler.
Greece is pledging structural reforms, albeit on its own terms.
Prime Minister Alexis Tsipras apparently made some headway in a meeting in Brussels with other leaders from across the euro zone, who said there's an air of "mutual trust" in the group.
Of course, and as always, Germany is still playing hardball where bailout money is concerned.
"It is clear that Greece is not obliged to implement recessionary measures," Mr. Tsipras told reporters, according to Reuters.
"Greece will submit its own structural reforms, which it will implement."
It was on that basis that Mr. Tsipras was elected. And as we've seen often in the euro zone, these things don't play out easily.
But there's certainly an air of optimism today after they all agreed to speed things up.
"Leaders took a more active role in the negotiations in a bid to push through the logjam that has so far blocked Greece's access to funds," said Alex Koustas of BMO Nesbitt Burns.
"Greece will need to re-submit a more concrete reform plan, but the leadership summit seems to have bypassed some of the more rancorous channels."
M&A heats up
Things are heating up on the M&A front this morning.
The merger of Holcim Ltd. and Lafarge SA, which promises to form the world's largest cement company, is back on.
The two companies announced today that they have struck a new agreement that makes Holcim happier.
Originally, Lafarge shareholders were going to get Holcim shares on a one-for-one basis. In the revised deal, they'll get nine for 10.
There's still no agreement as to who will be chief executive officer, however.
There's also a new bid this morning to marry to U.S. mall companies.
Simon Property Group Inc. upped its bid for The Macerich Co. to $95.50 (U.S.) in cash and stock.
Macerich said no to an earlier hostile bid, and adopted a poison pill to fend off Simon Property.
The latter said the new bid is its "best and final offer," though companies in that position frequently say such things.
- Holcim, Lafarge merger back on track after revised terms
- Simon Property makes 'best and final' offer for Macerich
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