MNI REALITY CHECK: Canada CPI Hit by Pandemic Disruptions

Canadian industry leaders tell MNI their cost and price decisions remain dominated by volatile supply chains and demand swings caused by the second wave of Covid-19, with the downward pressures of the lockdowns dominating for now.

Statistics Canada is due to report Wednesday the consumer price index rose 0.9% in January from a year ago, based on the economist consensus, faster than December's 0.7% pace but outside the central bank's 1%-3% target band. Prices are seen rising 0.4% on a monthly basis following a 0.2% decline in December, and matching the pace set in October.

The January figures come before the major weakness during the first wave of Covid-19, and will likely reflect the recent rise in gasoline and food prices along with weakness in hospitality services. The Bank of Canada projects CPI averaging 0.9% in Q1 and a big jump in Q2 on gasoline prices, while not sustainably returning to 2% until 2023.

Michael Young, President, Canada Beef:

"Prices are going to be strong as we move into the beginning of this year probably up to the summer," he said.

Beef prices remain strong because of global and domestic demand, even if they have fallen from highs reached last year amid supply shortages, Young said. "Over the last few months, with the packaging sector implementing more safety procedures and a substantially improved delivery system, we have seen that huge spike in prices come down -- but it is still high."

Some producers are reporting double-digit sales increases in Canada, in part because eateries are adapting to social distancing rules.

"Many of the hospitality sector service providers have adapted to take-out, and those who were able to open, a lot of them moved to a simple menu, which would allow them to be more efficient with their purchases," he said.

Producer costs have increased to keep workers socially distanced, so they must "pass along" those expenses to buyers, he said.

Jonathan Black, Executive Director, Canadian Association of Wireless Internet Service Providers:

The pandemic has shifted demand for internet services to rural locations amid the work-from-home trend, with usage up 50% to 70% between 8am and 9am, Black said. Before the pandemic the rural peak time was driven by residential use between 6 to 10 pm.

"Many of our members have been investing in new equipment, many of them were expanding their capacity and reaching more subscribers," he said, and more will be needed. "The second or third wave will cause more people to live at their second residence, their cottage, so there will be more longer-term commitment."

"People will not get back to offices the same way that they were in five years, and there would be fewer people in offices than today, and that means the continued ongoing increased demand for better service in rural Canada," Black said.

"Use of commercial office spaces will return but not to the same levels as it did pre-pandemic, and this will bring a fundamental change in where people want internet and the quality of it, and how much they are willing to pay for it long-term."

John Dickie, President, Canadian Federation of Apartment Associations:

Rents are still climbing 2% to 3% in many suburban areas with the lockdowns leading people from downtown areas, he said. Rents have been declining in major cities and university communities that depend on immigration and students.

This year will likely be turbulent again amid lockdowns and restrictions on people coming to Canada for work or study, Dickie said. In the longer run, a shortage of rental units will support higher rents.

"We can expect a fairly sharp recovery as there is no lack of demand in the economy, but the lockdown temporarily reduced economic activity," he said.

Another source of support has been government relief checks, though it would be better if they were targeted to reflect the higher cost of living in big cities, he said.

"Government support for low-income people has been very solid generally," he said. "In the second quarter, for example, total personal disposable income rose in Canada sharply and that is unheard of" during a recession.

"Rents in New Brunswick or Quebec for small apartments are about 500-600 dollars which leaves 1,400 or 1,500 dollars for other expenses, but in Toronto and Vancouver 2,000 dollars barely covers the rent."