June 24 (Bloomberg) -- New televisions are so cheap, making old ones so unwanted, that Canadians will pay Brian Scudamore’s waste-removal company C$29 ($27) to haul away perfectly good used sets.
“You can say the same about anything that’s electronic, stereos, speakers, big screen TVs, computers, and all that stuff,” the founder of Vancouver-based 1-800-GOT-JUNK? said by telephone. Leaving items at the curb doesn’t work, he said, because “even for free, people aren’t taking them.”
While inflation last month exceeded the central bank’s 2 percent target for the first time in two years, spare economic capacity, reflected in flat or falling prices for durable goods such as televisions, gives Bank of Canada Governor Stephen Poloz scope to extend the longest rate pause since the 1950s -- an era when children inherited television sets from their parents.
The consumer price index rose 2.3 percent in May from a year ago following April’s 2 percent pace, Statistics Canada said last week, exceeding all forecasts by economists surveyed by Bloomberg. The rate masked a stark divergence: energy costs climbed an annual 8.4 percent for the second straight month, while the video equipment category, which includes televisions, fell 4.6 percent.
Canada’s competing inflation trends mirror price movements elsewhere. In the U.S., where consumer durable goods prices have been deflating for years, Federal Reserve Chair Janet Yellen said last week future moves to pare stimulus will be “measured.”
The world’s 11th largest economy has so much unused capacity that Poloz doesn’t have to contend with widespread inflation, said Carl Weinberg, chief economist at Valhalla, New York-based High Frequency Economics.
“Slack is still abundant” in Canada, said Weinberg by telephone. “What we have seen isn’t enough to create overall price pressures.”
At the June 4 rate announcement, policy makers said the current 1 percent setting for the bank’s benchmark interest rate was appropriate to generate growth and gradually use up spare capacity. While the Bank of Canada has kept its rate at 1 percent since September 2010, just above the record 0.25 percent, Poloz has said inflation will fall back below target if the expansion isn’t sustained.
Growth in Canada has slowed for the past three quarters, to a 1.2 annualized pace in the January-March period. The country’s employment engine has also stalled, with the economy seeing a loss of 26,700 full-time jobs in the past year.
The core inflation rate, a measure that excludes eight volatile products and is used by the Bank of Canada as an indicator of future pressures, increased 1.7 percent in May after a gain of 1.4 percent the prior month.
While that pace was the highest since July 2012, core inflation in Canada has been “reasonably steady,” Finance Minister Joe Oliver said in a Bloomberg TV interview in London yesterday.
“I haven’t heard people saying there’s a concern about inflation rocketing upwards,” Oliver said, “and the latest numbers suggest that we’re not at risk.”
The numbers also suggest the bank will overhaul its inflation forecast. In April, it projected core inflation would average 1.2 percent this quarter and not reach 2 percent until the first quarter of 2016. At the last announcement, the bank said the downside risks to its inflation outlook were as important as before, a statement that may be changed as early as June 27 when Deputy Governor Larry Schembri gives a speech.
Schembri will speak to the Canadian Payments Association in Charlottetown, Prince Edward Island. The text of his remarks will be published at 11:55 a.m. Toronto time.
“It is getting increasingly difficult for the bank to downplay rising core inflation,” according to Toronto-Dominion Bank economist Leslie Preston. The central bank’s mandate is to keep inflation in the middle of a 1 percent to 3 percent band, and its next interest rate decision and forecast document will be published July 16.
While his tone may change, Poloz will hold his 1 percent policy interest rate and keep a neutral bias, said David Madani, an economist at Capital Economics in Toronto.
“It’s still a firm neutral stance because he is focused on the outlook for growth and the economy and what that means for future inflation,” Madani said. Some of the upward pressure on energy and food costs is temporary, he said, predicting broader economic weakness will keep Poloz on hold through next year.
Meanwhile, Canada’s bifurcated inflation will persist, Madani said. “Electronics prices have been falling and that’s a good thing, nobody complains about that,” he said. “The reason gasoline prices get so much attention is it’s in our face.”
For now, there are few signs that prices for video equipment in Canada, down almost 64 percent in the past 10 years, will reverse soon, pressuring Poloz. Franchisees of Scudamore’s waste-removal company often take a trip down technology’s memory lane as they haul away outdated laptops and other electronic gear along with the televisions.
“Everyone wants the latest and greatest,” he said.
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