It's a gas, gas, gas!

Canada's headline consumer price index slowed sharply in January, with the year-on-year rise slipping to 1.4 percent from 2.0 percent in December. However, every index except the headline reveals that inflation remains very close to the Bank of Canada's 2 percent target, so the data have no implications for Bank of Canada policy.

The fall in headline CPI in January was solely driven by weak energy prices, which fell 7 percent from a year earlier.  Most notably, gasoline prices were fully 14 percent lower than the year before, a direct result of overproduction by US refiners. If gasoline prices are taken out of the index, the yearly rise in CPI was 2.1 percent.  All three of the Bank of Canada's preferred measures of core inflation stood just below the 2 percent target in January.  These measures have been remarkably stable for the past several months.

With the underlying inflation rate so stable, fluctuations in gas prices at the local station have proved to be a very reliable indicator of monthly movements in headline CPI.  So, with that in mind.....gas prices have been heading higher for the past several weeks.  At least some of the increase took place before StatsCan's sampling "window" for February.  Ceteris paribus, this suggests that headline CPI will move back toward the 2 percent target level either this month, or at the latest in March.

So long as its preferred measures remain stable, these fluctuations in the headline rate will not trouble the Bank of Canada.  With inflation on target, wages stagnant and the Fed taking a dovish stance, there is no real prospect of any change in Bank policy until the second half of the year. 

Chapter and verse

Campaigners against sexual abuse of children by Roman Catholic priests are angry with the statement put out by Pope Francis after the extraordinary "summit" of bishops in Rome. The statement goes much further than the Church has ever gone before in condemning such abuse and vowing to root it out, but the Pope stopped short of using the term "zero tolerance".  Those may be just words, but they should not have been difficult for the Pope to say.  After all, sexual abuse of minors is not simply an offence against the precepts of the Church -- it is a crime in every lay jurisdiction around the world in which the Church is active.

As someone educated in both grade school and high school by Catholic religious (first nuns, then Jesuits), there's something else about the Pope's statement that I found very strange.  He seemed to be attempting almost to downplay the severity of the accusations against Catholic priests by pointing out that child abuse is common in all corners of society.  If there's one thing that I learned from those nuns, brothers and priests all those years ago, it's this:  your sins are your own.  They're in no way mitigated by the fact that other people may be doing the same thing.

I can even offer you chapter and verse on this: St Matthew's Gospel, Chapter 7, vv. 3-5.  Here is the King James Bible rendition:

3 And why beholdest thou the mote that is in thy brother's eye, but considerest not the beam that is in thine own eye?

4 Or how wilt thou say to thy brother, Let me pull out the mote out of thine eye; and, behold, a beam is in thine own eye?

5 Thou hypocrite, first cast out the beam out of thine own eye; and then shalt thou see clearly to cast out the mote out of thy brother's eye.

I wouldn't quite go so far as to accuse the Pope of hypocrisy here, but the Biblical message seems unequivocal: fix your own and your Church's problem before you start casting aspersions on others.  I actually heard a priest on TV after the Pope's statement suggesting that the Church was ready to lead a crusade against child abuse.  It's hard to think that there will be many people who are prepared to follow Rome's lead on this for a long time to come.

Right and wrong

It was never likely that the wave of nastiness and xenophobia that has swept across the UK during the Brexit fiasco would remain confined to matters European.  There are worrying signs that something very close to outright racism is well on the way to becoming official government policy.

Home Secretary Sajid Javid is presiding over a resumption of deportation flights of UK residents with criminal records to Jamaica. The deportation programme was halted a few years ago when it was revealed that a good number of the people being sent home had been incorrectly identified.  The latest batch of deportees apparently includes people who arrived in the UK as children and people who now have British born children that they will be forced to leave behind.

These people may have been born in Jamaica, but they were not criminals when they arrived on British soil.  If they had been, they would not have been admitted to the country.  Their criminality is entirely British and should be dealt with in the UK.  What chance do people who have never lived in Jamaica as adults have of building a decent life there for themselves? And how is this fair to Jamaica, a poor country with enough criminals of its own that hardly needs to be importing more from the UK. 

Not content with the deportations Sajid Javid, who obviously likes to keep himself busy,  has now taken steps to deprive Shamima Begum, a young UK-born woman who went to Syria and joined ISIS, of her UK citizenship. If anything this is even more egregiously nasty than the treatment of the Jamaicans.  Begum was born in the UK, but Javid is using an obscure legal provision that allows UK citizenship to be taken away from anyone under the age of 21 who also has rights to citizenship of another country. Begum is of Bangladeshi descent, but has never visited that country, and has already been told that she is not welcome there, so in effect Javid is making her stateless.

Begum's decision to run away and join ISIS was stupid -- though she was only 15 at the time -- and some of her pro-ISIS rhetoric in recent years has been harsh.  Still, she now has a child who is eligible for UK citizenship, so the moral case for allowing her back into the country is strong.  Moreover, in purely practical terms it is surely better to have her back in the UK, where she can be kept under surveillance, than to give her a fresh grievance and let her disappear from view.  As one columnist in The Guardian pointed out this week, a radicalized Osama bin Laden was barred from returning to his home country of Saudi Arabia; we all know how that worked out.   

Things have come to a pretty pass when former Chancellor of the Exchequer George Osborne, not noted for his progressive views, is aghast.  In his current role as editor of the London Evening Standard, Osborne wrote as follows:

"I understand the anger of those who say Shamima Begum should not be allowed to return to the UK. But I don’t agree, for a simple reason: she was born in Britain and has British citizenship. Which other is supposed to look after her on our behalf? Syria? Another European country? Can you imagine the fury here if we took a French or Italian citizen who joined Isis?

Begum is homegrown and is our problem. It has to happen here. As for her newborn boy, he will be one of the most vulnerable British citizens in the world. Unless we have now given up on compassion and justice – and believe that the sins of the mother should be visited on an innocent baby."

Osborne is speaking of the Begum case there, but his logic applies equally to the Jamaican deportees. The problem, be it radicalization or criminality, originated in the UK, and it's up to the UK to deal with it.

With the UK Labour Party now in almost as much disarray as the Tories, there are reports that Theresa May might be tempted to call an early General Election.  Neither party is prepared to stand up for remaining in the UK, even though polls shoa a majority of voters now favour that.  If Javid's moves are a foretaste of the way the Tories might seek to hold onto power, things may get very ugly indeed.

Populism in action

There were many reasons for the Ontario Liberal Party's shattering defeat in last year's Provincial election, but one policy decision stands out: the partial privatization of electrical transmission utility, Hydro One.  The stage had been set for privatization more than a decade before, when Tory Premier Mike Harris broke up the venerable Ontario Hydro into its generation and transmission components.  However, it took the cash-hungry Kathleen Wynne to pull the trigger on the sale.  By the time the Liberals were booted out of office, only 47 percent of Hydro One remained in public ownership.

You might have thought that the incoming Tories under Doug Ford, with their free market bent, would have been quick to sell off the rest of the company.  Instead, Hydro One has become Ford's favourite whipping boy, even though his government no longer actually owns it.  Even before the election, Ford was railing away at Hydro One's CEO, Mayo Schmidt, dubbing him "the six-million dollar man" on account of his compensation package.

Complicating things somewhat, Mayo had been spreading himself a bit by making an offer to purchase Aventis, a power utility in the US northwest.  It's hard to imagine that Wynne had this in mind when she started selling the company off, and most of the commentary on the deal was severely negative.  In any case, as soon as Ford took office, he began the process of turfing Schmidt out.  This was accomplished quickly, though it is unlikely that the terms of his severance saved the company or the Ontario taxpayer any money.

Then things really turned nasty.  There had been plenty of opposition to the takeover on the part of US state regulators, who had to approve the deal.  Ford's impetuous sacking of Schmidt made it easy to argue that the transaction, far from being an ordinary commercial link-up, would bring power supplies in several states under foreign (Canadian) political influence.  The deal was quickly thrown out, which might have been good news from Ontario consumers' point of view, except for the small detail that it left Hydro One liable to pay Aventis a $103 million drop-dead fee.

Ford has never hinted at remorse over all this, and it's now clear that he isn't yet finished messing with Hydro One.  The company is looking for a replacement CEO, indeed has a candidate lined up, and Ford's team are interfering again.  The mooted compensation package for the new CEO is around $2.9 million, which looks like a bargain compared to Schmidt, but is way too high for Ford's liking.

The Energy Minister, Greg Rickford,  has sternly warned the company -- which, remember, the Province doesn't actually own any more -- that anything more than $1.5 million will attract the wrath of Doug.  What's more, the Province also wants to set limits on the compensation of the entire executive team and the Board of Directors.  Rickford warns solemnly that "this is not a negotiation". It seems likely that the company's senior management will walk away en masse as soon as their contracts allow, and there is little chance that the chosen candidate will take the job at half the promised salary.

A quick glance at social media reveals that this bullying of perceived fat cats is being received very positively by Ford's electoral base.  No doubt that's the whole idea.  Whether people will feel as good when the lights start to go out is a question that can be left for later.

Monday miscellany

• Former Canadian Finance Minister Michael Wilson has passed away at the age of 81.  A Bay Street veteran, Wilson was appointed Finance Minister in the Brian Mulroney government at a time of massive budget deficits.  Despite his private sector cred and some ambitious plans, Wilson was never able to tame the deficit monster -- that had to wait for the arrival of Paul Martin.  That was one of the few failures in Wilson's career; he was a decent and distinguished man with a long list of accomplishments.

• Canada's equity market is under attack from short sellers because the rules here are less restrictive than elsewhere. The article calls them "abusive" short sellers, but really, is there any other kind?  As I've said here before, a short seller is like the kid in class who rats out his classmates to the teacher.  Nobody likes that kid.  Any nugatory benefit from short-selling, in terms of more rapid adjustment of prices when bad news hits, is more than offset by the obvious potential -- and frequent occurrence -- of abuse. 

• The shutdown countdown is back on, with another partial closure of the US government possible by Saturday.  As I said when the last shutdown ended, if there is another one, it won't take three weeks for air traffic controllers and other essential workers to start calling in sick this time.  Since even the dumbest denizen of Capitol Hill must be aware of that, I'd bet that a way will be found to avert a shutdown, even if it's only through another temporary resolution. 

• The UK economy grew only 1.4 percent in 2018, its worst performance since the financial crisis.  Data for December were especially dire, with output falling 0.4 percent in the month.  With more and more companies in all sectors of the economy bracing themselves for a "no deal" outcome, the current quarter promises to be even worse -- and if there really is no deal by the March 29 departure date, the rest of the year could be truly catastrophic.  

Some slowdown!

Bank of Canada executives have recently been expressing some concern about the slowdown in the Canadian economy, resulting from trade problems, low oil prices and weaker consumer spending.  The Bank seems convinced that the slowdown is temporary; even so, it must have been as surprised as everyone else by the January employment data that Statistics Canada released this morning. Defying analysts' expectations for a modest 8,000 gain in employment, the Canadian economy actually added 67,000 jobs in the month. 

The most remarkable component of the data was the increase in private sector employment, which rose almost 112,000, the largest monthly gain since the current series began in 1976.  This brought the year-on-year increase in private sector employment to 293,000, accounting for the bulk of the 327,000 annual increase in total employment.  That total is divided almost equally between full-time and part-time work.

Other elements of the report are rather less favourable, and as usual the volatility of the sub-components casts some doubt on the underlying trends.  To quote just one example, StatsCan reports that self-employment fell by 61,000 in the month. With fewer than 3 million self-employed persons in the economy, and a standard error for this component of almost 27,000, this figure cannot be taken too seriously.

Other notable numbers include:

• The labour force grew by over 100,000 in the month, so despite the surge in employment, the national unemployment rate actually ticked up to 5.8 percent.  To the extent that the labour force growth represents an "encouraged worker" effect, this can be seen as a positive development.

• The growth in employment was more than fully accounted for by the services sector, which saw a broad-based gain of 99,000 positions in the month.  However, the goods-producing sector shed 32,000 jobs, to stand effectively flat year-on-year. There are growing concerns over the impact of US tariffs on key segments of Canadian industry, and this weakness in goods-sector employment likely reflects that, at least in part.

• Employment in Alberta continues to fall in response to problems in the energy sector. Employment in the Province fell 16,000 in the month, pushing the unemployment rate up to 6.8 percent.

• The pace of wage gains ticked up slightly to 1.8 percent year-on-year, but remains well below the 3.7 percent pace seen as recently as mid-2018.  The Bank of Canada has expressed its bafflement at the sluggish pace of wage growth, given the apparent strength in the national labour market.

There is little here to alter the Bank of Canada's policy stance.  The surge in the labour force shows  there may be more slack in the jobs market than the headline data would suggest.  The subdued pace of wage growth means that slack is being taken up, at least so far, without triggering a worrying surge in labour costs.  For now, given the more dovish tone take recently by the US Federal Reserve, there is no reason to expect any further tightening moves until at least the second half of the year. 

Crypto? Hell no!

It would take a heart of stone not to laugh at the ongoing collapse of the market in so-called cryptocurrencies.  The only real question about this whole business was whether it was a scam or just a bubble.  A little of both, it turns out.

Cryptocurrencies always seemed like a solution in search of a problem.  Sure, the central banks, as guardians of the world's conventional currencies, are far from perfect.  Still, in recent decades they've become a whole lot better at protecting the value of those currencies from the ravages of inflation. If you want to understand the inherent nature of the crypto world, you just have to look at the people promoting it -- everyone from the lugubrious Winklevoss twins to, Lord help us, the Government of Venezuela.  Then there's the fact that crypto currencies are bad for the environment, thanks to the prodigious quantities of energy used in the so-called "mining" process.  All in all, Bitcoin, Ethereum and the rest make tulip bulb mania look like the height of conservative investing.

One sad but instructive crypto-related lawsuit is now before the Canadian courts.  It concerns the country's biggest crypto exchange, QuadrigaCX, which is now in dire straits following the untimely death of its founder, at the sadly premature age of just 30. The company's creditors are looking to recover their assets, supposedly valued at C$250 million, though since the bulk of this represents cryptocurrencies, the real value must be almost impossible to determine.  Nobody knows how to recover the money, because when the founder passed away late last year, he took the only password with him.  At the risk of sounding unduly flippant about this, you don't have to worry about that sort of thing if your investments are in greenbacks, loonies or Euros.

Now there are calls for government to step in and bail the "investors" out of their losses.  Really?  Many of the people who jumped head first into this market did so out of a libertarian desire not to have anything to do with government.  Some of them may also have harboured thoughts of avoiding taxes and money laundering regulations. And now that it's all gone pear-shaped, they want the government to ride to the rescue? 

In a masterpiece of understatement, the writer of the linked article says that a "sympathetic view is not widespread" when it comes to compensating these folks for their losses.  With an election campaign now getting under way, you would have to think that any politician putting forward a platform to "save the greedy crypto speculators" might have a death wish.  For sure, the Bank of Canada should be keeping an eye out for any systemic risks that might arise here, but otherwise, it should allow the whole nasty and pointless mess to fade away, with the losses falling where they belong, and not on the taxpayer.