Consumer prices up more than expected in April | Globe & Mail
Now that the credit crisis is being managed into some sense of order, we are now seeing introduction of concern for inflation. This reflects prices and is well documented in this piece in the Globe & Mail.
reportonbusiness.com: Consumer prices up more than expected in April
“While Canada is faring better than most other countries, it appears that the shelter provided by the loonie from surging global commodity prices may be fading,” said Michael Gregory, senior economist at BMO Nesbitt Burns.
’tis inevitable that Canada is dragged onto the dance floor for a slow dance with the ugly sister of inflation. Fortunately, many Canadian businesses do business with customers in countries with weak coupling to the US economy. This will help.
Canadian mortgages are reasonably healthy and the home construction industry has not seen much real effect. Home prices are at worst stagnant or growing modestly.
Rather than lower the overnight rate in June, the BOC may be well advised to go counter and raise the rate by 1/4%. Yes, this will pump up the dollar, but will help abate inflation which is a much uglier sister to bring to the dance once she begins partying.
Over the long term however, Canada’s industrial and production provinces, esp. Ontario and Quebec face serious challenges to keep high wage jobs v. the oil patch. The sheering effect of the difference is a danger to Canada’s economy and federal government revenues.
Canada must bring its high technology sector along faster. Canada must provide compelling reasons for our best and brightest to remain in Canada instead of the often greener pastures of the US and elsewhere. If compelling reasons means higher pay, then so be it.
The federal government is partially to blame for bringing the ugly inflation sister to the dance. By lowering the GST too much, consumer purchases have risen. Much better to keep the GST higher and to apply those revenues against the half trillion of lingering deficit debt which costs Canadians about $40M per day in borrowing costs. That’s about $1000 per year per tax payer (to abuse averages). I’d much rather have that $1K to invest. in my RRSP’s year after year after year especially with tax sheltering. Instead, taxes go to debt payments. Ouch!
In an energy challenged world Canada behaves very badly. We use oil at a per capita rate higher than Americans. We charge absurdly low royalties on oil (close to the lowest in the world). We do not have an integrated, progressive and far reaching national energy policy. And by such I mean a policy to drastically reduce energy consumption in Canada, esp. oil.
And through such leadership, Canada could be at the forefront of developing energy reducing technologies, processes and systems that would re-invigorate the eastern economy. If we had such a dynamic engine of technology growth that was not coupled to resources, then the ugly sister of inflation would be more welcome to dance with us.
Alan
May 23, 2008 at 6:20 pm