Jun 25, 2008

Inflation and Canada

Canadians are already feeling the effects of strong emerging-market demand for commodities. They'll feel it more next week when hundreds of thousands will see their Enbridge natural gas bills jump 30 per cent. They'll see it when they fill up their cars' gas tanks for summer vacation.

The U.S. Federal Reserve, facing a rapidly slowing American economy and a collapse in the U.S. housing market, will likely lay the anti-inflation rhetoric on thick Wednesday. The Fed is widely expected to not only keep rates steady, but maybe even hint at future increases, after months of aggressive cuts to stimulate growth.

Around the world, inflationary pressure is increasing. Total global inflation was rising at a 6.0-per-cent annual pace in May, and core inflation – which excludes the most volatile prices such as energy and food – was 3.5 per cent. …

But in emerging markets – which now make up about half the globe's economy – total inflation is bubbling over, and in many countries, core prices are jumping too, rising from about 3 per cent in 2006 to 5.3 per cent this May

... according to Goldman Sachs

For years, emerging markets have kept prices low around the world, producing copious amounts of cheap goods of increasingly better quality. This helped the US and Canada. However , this is a red alert situation. While Global inflation hits the emerging markets , the cost of their food, oil and cost of living goes up. This is directly being transfered to commodities. This means that nothing will be cheaper in Canada or the US and thereby the CPI will continue to increase.

Bottom line, The cost of living is on the raise and thereby the expandable income of consumer will continue to drop. Sometime in the near future, there will be the tipping point. Economic depression will hit. There's a vicious cycle in the making.

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