Related Articles
Treasury
TD Asks What Is The Risk of A 2022-Style Surge in Inflation
There is no two ways around it, inflation is rising and will continue to do so in the near term, said TD.A doubling in oil prices, a 30% increase in diesel prices and shortages in jet fuel are filtering into the prices consumers pay, noted the bank. That's just the beginning.Right now, countries are mostly seeing first-order effects on prices directly tied to these products, but the impact will broaden to second-order effects within broad production and transportation supply chains, TD pointed out.There are several key distinguishing factors today versus 2022, stated TD. Although energy prices are surging and supply chains are snarled, the magnitude and scope on goods and services is to a far lesser extent compared with 2022.In addition, this cycle lacks the "revenge spending" boom that accompanied the reopening of global economies that were fueled by excess pandemic-era savings. Lastly, labor demand is much weaker than post-pandemic, when firms were under pressure to quickly rebuild workforces to meet surging demand. This means far fewer people are switching jobs in search of higher wages, which pressured employers to pass along those costs to consumers.The bank expects the oil supply shock to boost consumer price index inflation to average 3.6% and 2.7% in the United States and Canada, respectively, this year. Markedly higher than the 2.8% and 2.2% projected last December.However, the bleed-through to core prices should be more muted than in 2022, with the demand side of the equation in a very different place, said TD.Lastly, central banks will be more reactive this time around to quell runaway prices. The pandemic was a once-in-a-century economic disruption, whose effects weren't well understood. The word "transitory" frequently described the jump in inflationary pressures, which proved incorrect, added the bank.The lens of central banks was also blurred by a decade of weak inflation that pre-dated the pandemic and created a bias towards a "wait-and-see" approach to inflation.With their credibility subsequently undermined, policymakers won't want to make the same mistake again, according to TD. Many are already sending clear signals that rate hikes will be in the queue if the energy shock doesn't dissipate. Central banks will set a lower ceiling on what they are willing to tolerate in inflation compared with in 2022.
$$CXY
Treasury
TD Looks at The Outlook of The CUSMA Trade Deal Review
As the United States tariff developments continue to unfold, the first review of the CUSMA trade deal is expected in July, said TD.With roughly a third of U.S. trade covered by the agreement, a material modification could have a significant impact on the North American economy, noted the bank.At this point, U.S. officials have suggested that the core elements of the agreement will remain intact, but TD expects updates in areas like more stringent domestic content requirements, alignment on trade policies related to China, and stronger partnerships on areas of shared interest, such as critical minerals, energy, etc.The U.S. Trade Representative is expected to submit its plans for review to Congress by June 1, with the formal review scheduled to follow one month later.Although the bank's expectation is that trade policy will remain broadly stable in 2026, the numerous developments will keep policy uncertainty elevated. The CUSMA review is likely to be challenging and could weigh on business sentiment in all three countries.While the potential threat of withdrawal from the agreement is likely a distant tail risk, mired by legal questions, threats could quickly feed through to business hiring and investment intentions, added TD.Currently, the most probable outcome is for the core of the agreement to remain in effect, with concessions offered by Canada and Mexico in exchange for some reduction in certain Section 232 tariffs, according to the bank.
$$CXY
Treasury
Canada's Productivity Issues Made Worse by the "Silent Brain Drain", Says TD
Canada's productivity challenges are magnified by struggles around the retention of top talent, according to TD Economics.Canada's strong record of educating and training globally-competitive workers and entrepreneurs is undermined by substantially higher personal taxes that draw those individuals elsewhere, particularly to the United States, which has always been highly selective in attracting people from Canada's upper tail, wrote the bank in a note to clients.The fundamental problem isn't attracting talent but anchoring it, said TD. Canada produces strong research and education outcomes but underperforms on commercialization, business research and development, tech adoption, and scaling firms, which lowers the domestic returns to skill and entrepreneurship versus U.S. innovation clusters, it added.Canada's tax and incentive structure further compounds the issue, said the bank. High top marginal personal tax rates kick in at much lower income thresholds, while complex business tax rules encourage remaining small rather than growth, it added.
$$CXY