Canadians are paying less for food, but a lot more for gas

OTTAWA — The annual pace of inflation in Canada ticked lower in February as higher prices for gasoline were offset in part by lower costs for fresh fruit and vegetables.

Statistics Canada said Friday the consumer price index rose 2.0 per cent on a year-over-year basis in February. The move compared with a 2.1 per cent increase in January. Economists had expected it rise 2.1 per cent in February as well.

Prices were higher in seven of the eight major components, with food the only one to decline.
Excluding gasoline, the February consumer price index was up 1.3 per cent compared with a year ago following a 1.5 per cent in January.

Transportation costs gained 6.6 per cent compared with a year ago, boosted by a 23.1 per cent rise in gasoline — which was at an unusually low level in early 2016. Shelter costs rose 2.2 per cent.

Food costs fell 2.3 per cent as prices for food bought from stores fell 4.1 per cent. Prices for food bought from restaurants rose 2.3 per cent but fresh vegetables dropped 14.0 per cent and fresh fruit slipped 13.3 per cent, partly reflecting a spike in prices last winter.

The annual pace of inflation slowed in seven provinces on a year-over-year basis in February while Ontario and B.C. both held steady at 2.3 per cent. Manitoba was the only province to show an increase in the annual pace of inflation as it increased to 2.3 per cent compared with 2.1 per cent in January.

Statistics Canada said the Bank of Canada’s three preferred measures for core inflation saw year-over-year increases last month of 1.3 per cent, 1.9 per cent and 1.6 per cent.

The U.S. State Department approves TransCanada’s Keystone pipeline

The U.S. Department of State has signed and issued a presidential permit to construct the Keystone XL Pipeline, TransCanada Corp said this morning.


More to come …

Morneau not finished addressing hot housing markets: ‘There are clearly supply issues in … Vancouver and Toronto’

Finance Minister Bill Morneau says he recognizes supply issues are at least partly responsible for fast-rising housing prices in booming cities such as Toronto and Vancouver, and is not ruling out further targeted reforms to cool Canada’s real estate market.

However, in an interview with the Financial Post on Thursday, he said the federal government must be mindful that whatever it does affects the entire country and may have negative consequences in markets that don’t share the demographic characteristics of metropolitan cities in British Columbia and Ontario.

“We’ll always consider whether we should be looking at new (federal tools), but we’ll do that recognizing that our approaches are national and when we look at what happens to the Toronto and Vancouver markets, we also need to remember what happens to the Moncton and Winnipeg markets,” Morneau said Thursday.

“We don’t want to do something that’s going to cause … challenges somewhere else.”

In Wednesday’s budget, the federal government committed $39.9 million over the next five years to “address gaps in current nationwide housing data” and create a comprehensive database including up-to-date information on purchases and sales, including the degree of foreign ownership and information on homeowner demographics and financing characteristics.

Morneau said the comprehensive database will be a welcome tool, the first of its kind. But he noted that federal officials who deal with housing are in “continuing discussions” with their counterparts in Ontario, British Columbia, Toronto, and Vancouver about the characteristics of the real estate market in those provinces and cities.

“There are clearly supply issues in places like Vancouver and Toronto around housing,” Morneau said, noting that healthy economies, low unemployment and immigration in those markets are contributing to demand for scarce detached and semi-detached single-family homes.

“What we can do is we can work together with the provinces and the cities to identify tools that various levels of government have to ensure the market is healthy, and … co-ordinate a way to make sure we’re being as effective as we can to manage the market.”

Morneau declined to discuss what potential intervention is under discussion, such as whether an additional 15 per cent land transfer tax B.C. imposed late last year on foreign homebuyers in Vancouver would be adopted by Ontario.

“The specific measures, I’m not going to comment on, but we continue to be in discussions,” he said. “I’m in regular contact with (Toronto) Mayor (John) Tory, as an example. That’s part of what we see as the responsible way of ensuring the market’s healthy.”

Jason Mercer, an analyst who has written reports on Canada’s real estate market for Moody’s Investors Service, said housing supply is not an easy problem for government to solve if it’s truly driven by domestic demand including immigration patterns.

“Now, if the demand is from speculative investment, then a number of policy issues could be on the table,” he said, adding that these could include a speculation tax or a foreign buyer tax.

Dave McKay, chief executive of Royal Bank of Canada, said last month it might be time for Canada’s most populous province to consider measures similar to B.C. foreign buyers’ tax to tamp down housing prices, a move that was initially rejected by the Ontario government. The bank executive said his concern stemmed from rapid double-digit price increases for average single-family homes in some markets.

If the demand is from speculative investment, then a number of policy issues could be on the table

But officials at the Toronto Real Estate Board have argued that the land transfer tax would be a mistake, one that would lead to unintended consequences such as higher price growth in surrounding areas that did not have a tax, and would not address the more serious supply issues. In a January statement, TREB said the additional land transfer tax in Ontario could also hurt the rental market and crimp immigration, which is driving population growth in Toronto.

The federal government took concrete steps last year aimed at cooling real estate markets across Canada. Among other measures, buyers seeking insured mortgages are now required to qualify at posted interest rates that are higher than the rates they will actually be paying.

Canada’s banking regulator, the Office of the Superintendent of Financial Services, also weighed in, proposing that banks hold higher capital against some residential mortgages to keep up with the rapid rise of house prices and highly leveraged buyers in certain markets. OSFI also said banks’ underwriting would be subject to more scrutiny, particularly in the area of income verification.

Canada’s hot real estate market has attracted attention from both domestic and international tracking organizations, including the International Monetary Fund and the Bank of International Settlements. In a report this month, the BIS cited “vulnerabilities” in Canada tied to credit, property prices, and the prospect of rising interest rates.

Earlier this year, an economist at the Canada Mortgage and Housing Corporation, a Crown corporation, told reporters the rate of house price increases in cities including Vancouver, Victoria, Toronto, and nearby Hamilton is outpacing economic factors including employment and immigration – a trend that suggests speculation is contributing to the increases.

Financial Post

U.S. State Dept to approve Keystone pipeline permit by Monday, Politico reports

WASHINGTON — The U.S. State Department will approve by Monday the permit needed to proceed with construction of the Canada-to-United States Keystone XL oil pipeline, a project blocked by former President Barack Obama, according to Politico.

The approval of the permit would mark the beginning of process that could be lengthy and complicated by approvals needed by state regulators and legal challenges.

But President Donald Trump, a Republican, supports Keystone and days after he took office in January ordered its construction. That could mean that project, first proposed in 2008, will eventually be completed.

The State Department’s undersecretary for political affairs, Tom Shannon, will approve the cross-border permit for TransCanada Corp’s pipeline on or before Monday, the report said.

Monday is end of the 60-day timeline that Trump ordered in January when he issued an executive order for the construction of Keystone and the Dakota Access pipelines.

The Keystone pipeline would bring more than 800,000 barrels-per-day of heavy crude from Canada’s oil sands to U.S. refineries and ports along the Gulf of Mexico, via an existing pipeline network in Nebraska.

Obama had rejected the pipeline saying it would do nothing to reduce fuel prices for U.S. motorists and would contribute emissions linked to global warming.

TransCanada resubmitted its permit application after Trump’s executive order. Spokesman Terry Cunha said the company was working closely with the State Department.

“Monday is the deadline, so that’s what we’re working towards,” Cunha said.

A State Department official said there was no decision to announce on Keystone. A White House official did not immediately comment.

Conservatives said they supported quick approval. Nick Loris, an energy and environment researcher at the Heritage Foundation, said approval would “reestablish some certainty and sanity to a permitting process that was hijacked by political pandering.”

Environmental group Greenpeace had pushed for Secretary of State Rex Tillerson to recuse himself from a decision on Keystone, as Exxon Mobil Corp, the company Tillerson recently headed, could profit from the pipeline. Tillerson did recuse himself.

“We will resist these projects with our allies across the country and across borders, and we will continue to build the future the world wants to see,” Diana Best, a Greenpeace climate campaign specialist said.

A stretch of Keystone XL also awaits approval from Nebraska regulators. Transcanada has to file its pipeline route plans with the state’s Public Service Commission, which is required to hold public hearings on the proposal.

© Thomson Reuters 2017

Canada to sell record amount of bonds — $142 billion — to fund budget’s deficit-fueled spending promises

Canada’s federal government will issue a record $142 billion of bonds next fiscal year to finance its growing budget deficit.

The amount eclipses the previous year’s record of $135 billion, which was revised up from a projected $133 billion. The bulk of the issuance will be in two-, three- and five-year bonds, the federal government said in its budget for the 2017-18 fiscal year released Wednesday in Ottawa.

Prime Minister Justin Trudeau’s second budget extends the policies of deficit-fueled social spending and investment in infrastructure that helped the Liberal Party come to power in 2015. While bonds have sold off globally in recent months, sending yields up amid expectations for higher growth and inflation, Canada’s borrowing costs remain historically low.

“We’re really tweaking around the edges,” Doug Porter, chief economist at Bank of Montreal, said in an interview at the budget lock up. “The big adjustment was last year and we’re not seeing any significant changes this year.”

The budget deficit in 2017-18 will increase to $28.5 billion, including a $3 billion risk cushion, from $23 billion in the current fiscal year ending in March 31. Total borrowing, which includes treasury bills as well as issuance in foreign currencies, is projected to reach $286 billion. As much as $247 billion is required for the refinancing of existing debt.

Canada’s federal government debt will increase to $665.5 billion, putting it at 31.6 per cent of gross domestic product, where the ratio is forecast to peak this year and next. That level is still relatively low compared with other developed countries, which lets Canada boast a top credit grade at all three major rating companies.

Top Rating

“I haven’t had any concerns with rating agencies nor have I had any discussions with them,” Finance Minister Bill Morneau said last weekend in an interview in Baden-Baden, Germany. “My sense is that Canada’s very well-positioned and that the rating agencies, as they look at our situation, are positive.”

The government plans to hold 16 auctions of domestic two-year bonds and eight auctions of both three-year and five-year bonds in 2017-18. It will also auction 10-year bonds five times, 30-year bonds three times and real return bonds four times next year. March and September will see the biggest monthly issuance: it could reach as much as $36 billion of bonds in each of the months.

Even with the majority of new issuance coming in two- to five-year bonds, the average maturity of Canada’s domestic market debt will remain stable at around 5.5 to 6.5 years “over the medium term,” according to the budget. The share of debt with original maturity of 10 years and longer is expected to amount to 40 per cent over the next decade.

Yields Rising

The yield on Canada’s two-year federal government bonds rose to 0.87 per cent last week, the highest since January 2015. It fell one basis point to 0.78 per cent after the release of the budget on Wednesday, up three basis points this year. Canada’s five-year bond yield reached 1.32 per cent last week, also the highest since January 2015. It fell two basis points to 1.16 per cent on Wednesday, up five basis points this year.

Canadian government bonds returned 0.9 per cent in U.S. dollar terms this year, lagging the Bloomberg Barclays Global Aggregate Treasuries Total Return Index which rose 1.9 per cent.

Part of the under performance in bonds has come amid a weaker Canadian dollar. Even though it rose 0.8 per cent against its U.S. counterpart this year, it lagged all 15 other major currencies tracked by Bloomberg. The loonie gained 0.2 per cent to $1.3329 per U.S. dollar on Wednesday.

Bloomberg News

50 and debt-free: Rolling Stone looks to write next chapter as founder’s son waits in the wings

Rolling Stone magazine has found something even cooler than the latest indie rock band: freedom from debt.

After selling celebrity-focused Us Weekly magazine last week for US$100 million, Rolling Stone owner Wenner Media LLC will be debt-free for the first time in a decade, according to Gus Wenner, who officially runs the company’s online operation. And with the sale of a 49 per cent stake in Rolling Stone last year, Wenner now has the funds to invest more in guiding the music and pop-culture icon into the digital age.

“The debt will be completely paid off, and that takes a huge load and focal point off the table,” Wenner said in an interview from his office in midtown Manhattan, where proofs of an upcoming Rolling Stone cover sat on his desk next to a book of Bob Dylan’s lyrics.

The sale of Us Weekly comes amid a changing of the guard at Wenner Media, one of the last family-owned media companies. Gus Wenner runs the day-to-day operations. His father, Jann, who founded Rolling Stone 50 years ago, spends winters at his home near Sun Valley, Idaho. While some former employees say 26-year-old Gus lacks the experience to run a media company, others say his youth could help a magazine that has focused too much on aging rock stars when advertisers are seeking younger readers.

New Language

Gus Wenner declined to say whether he’d officially take the reins from his 71-year-old father this year. But he said he’s gained valuable experience while running the company’s web operations since 2013, embracing the internet in a way that his father never did.

“He was a little resistant to digital, and he didn’t believe in it to the degree he believed in print,” Gus Wenner said of his father. “When I came along, I spoke the language of a young person and felt we needed to grow the brand in other areas.”

Wenner Media sold half of Us Weekly to Walt Disney Co. in 2001 for about US$40 million, then borrowed to buy back the stake in 2006 for US$300 million. After the rise of online media and the financial crisis accelerated the decline of print magazines, Wenner Media was forced to make cuts to help pay off the loan, according to a former staffer who requested anonymity.

A Wenner Media spokeswoman said the company has been “aggressive in making the necessary staff changes to evolve our business” and has added staff while making “print-based layoffs.”

Wenner Media plans to pay off the money it still owes: about US$49 million in corporate debt, according to Moody’s. Now that it has fewer employees, Wenner Media no longer plans to move to Brooklyn from Manhattan, Gus Wenner said. And Rolling Stone is looking to invest more in video, including TV and film projects. Filmmaker Alex Gibney is making an HBO documentary about the magazine for its 50th anniversary, according to a person familiar with the matter who wasn’t authorized to discuss it publicly.

The Washington Post / Helayne Seidman

Trial Looms

Wenner Media is hardly out of the woods. Last year, Rolling Stone and reporter Sabrina Rubin Erdely lost a defamation case related to an article about a purported rape at the University of Virginia and were ordered to pay Us$1 million and US$2 million, respectively. Later this year, the company is scheduled to face another trial related to the article. A fraternity is seeking US$25 million in damages, and Moody’s said in October that Wenner Media’s liability insurance may not be enough if the company loses multiple cases.

The company declined to comment on whether its insurance would cover damages.

Meanwhile, Rolling Stone’s newsstand sales fell 9.3 per cent last year, according to MagNet, which tracks magazine sales. U.S. traffic to Rolling Stone’s website was down 28 per cent in January of this year from its peak in December 2015, according to ComScore Inc.

Spending Shifts

Wenner Media has struggled to attract advertisers that are spending more of their shrinking print budgets with magazine giants like Time Inc., Hearst Corp. and Conde Nast, where they can reach diverse audiences across many titles. Brands seeking young males — Rolling Stone’s core audience — are shifting their spending to online outlets like or websites focused on video games.

Last year, Wenner Media responded by launching Glixel, a website devoted to video games. And Rolling Stone just made a year-long advertising deal with Levi Strauss & Co., the jeans company. Gus Wenner said he wants to strike deals with brands that go beyond advertising. He cited, as a model, making Rolling Stone’s archives available on the Google Play Newsstand.

“Long-term, I don’t want to be in the business of solely relying on ad revenue with the way things are changing so rapidly,” he said.

Wenner Media’s two remaining magazines, Rolling Stone and Men’s Journal, generated about US$100 million in revenue in the 12 months ended last June, according to Moody’s. The company is profitable, Gus Wenner said, and its company’s digital revenue, excluding Us Weekly, has increased 70 per cent since 2013, according to the company.

Cultural Moment

The magazine industry is struggling because Google and Facebook have absorbed the majority of online advertising dollars, said Nicholas Lemann, a dean emeritus and professor at Columbia Journalism School in New York City.

“It’s very hard for anyone else to make a dent,” Lemann said.

Lemann said Gus Wenner could help Rolling Stone reach younger readers but that he’ll need to “capture a cultural moment” like his father did in the late 1960s and 1970s.

Jann Wenner started Rolling Stone in 1967 from a San Francisco warehouse at time when the Grateful Dead and Jefferson Airplane were performing at local clubs.

On the wall of Gus’s office is an old photo of his father with long hair and a mustache in the early days of Rolling Stone, when gonzo journalist Hunter S. Thompson was writing drug-fueled dispatches for the magazine. Another photo shows father and son with Barack Obama after Jann interviewed him in the Oval Office the day after the 2016 election.

“This is a business that means everything to my family,” Gus Wenner said. “These are brands I deeply believe in and want them to be around another 50 years, at least.”

Bloomberg News

It’s a bird, it’s a plane, nope it’s Canada’s retail sales soaring past expectations

OTTAWA — Signs of strength in the Canadian economy continued to gather momentum as retail sales for January came in better than expected.

Statistics Canada says retail sales climbed 2.2 per cent to $46.0 billion in January after declining in December. Economists had expected a gain of 1.1 per cent, according to Thomson Reuters.

“It’s a bird, it’s a plane, no it’s a superheated Q1 economy for Canada,” wrote CIBC economist Avery Shenfeld.

The economist said this latest data, which is bullish for the Canadian dollar and bearish for bonds, will make it difficult for the Bank of Canada to stick to “its dovish spin.”

The data follows recent stronger-than-expected results for wholesale and manufacturing sales, trade and job creation.

Retail sales in January were up in 10 of 11 subsectors, led by motor vehicle and parts dealers, which gained 3.8 per cent. Sporting goods, hobby, books and music stores fell 0.1 per cent.

Excluding sales at motor vehicle and parts dealers, overall retail sales gained 1.7 per cent in January.


‘Dear Subway, Love Freshii’: Founder proposes partnership with Subway in an open letter

TORONTO — The man behind Freshii restaurants is publicly appealing for a “partnership” with the much bigger Subway organization.

Freshii’s founder and CEO, Matthew Corrin, is calling for the conversion of “select” Subway sandwich shops to Freshii stores.

Corrin argues his proposal would be a quick, low-cost way to provide opportunties for both restaurant chains — which are vastly different in size but both catering to health-conscious consumers.


BloombergA Freshii Inc. restaurant in Vancouver, British Columbia.

Toronto-based Freshii currently has about 240 locations in 15 countries, compared with 44,600 franchised Subway locations in 112 countries.

Corrin’s letter entitled “Dear Subway, Love Freshii” and published as a full-page newspaper ad — calls for Subway franchise partners to convert their stores or add the Freshii brand to their business portfolio.

The pitch comes at a time when Subway has been disputing a recent Canadian Broadcast Corp. program that says samples of its chicken products showed less than half the DNA was from chicken.

It also comes ahead of the release of Freshii’s first financial report since the company debuted on the Toronto Stock Exchange in January, after a $125-million initial public offering of its stock.