Canadian Inflation Quickens (BCA)

Thursday, June 30th, 2011

The quickening of inflation is serving as a warning that the Bank of Canada has to do something to curb pressure with normal monetary policy measures in the coming months, says BCA Research, in its Daily Insight on Canada. Also prefaced is that this development should translate into a stronger Loonie.

Canada’s CPI experienced a greater-than-forecast month-over-month increase of 0.7% during May. Although this monthly increase was led by by food and energy, the core rate CPI rose by a strong 0.5% month-over-month. The underlying rate of inflation as measured by the Bank of Canada accelerated to 1.8% annualized, and this was far greater than the 1.4% forecast made by BoC in the latest Monetary Policy Report. As a result of worries over U.S. growth, Europe’s debt crisis, and hard landing fears in China, interest rate futures had all but discounted the need for higher policy interest rates for the next year ahead.

Despite those worries, it appears the Canadian economy is indicating that a tightening of monetary policy is required.

Housing is showing signs of bubbling, and there is pressure on the labour front, says BCA.

Yesterday’s CPI report contained warnings that spare capacity within the Canadian economy is nearly used up. Notwithstanding external economic shock, the monetary tightening cycle should be resumed later this year. So long as U.S. Fed policy stands down, spreads between short term interest rates will widen, making conditions favourable for the Canadian dollar and Canadian bonds will underperform its counterpart U.S. treasuries, assuming currency is hedged.

Source: BCA Research

Tags: Bank Of Canada, Boc, Canadian, Canadian Bonds, Canadian Economy, Canadian Inflation, Canadian Market, China Interest, Core Rate, Cpi Report, Debt Crisis, Economic Shock, Fed Policy, Interest Rate Futures, Labour Front, Loonie, Monetary Policy Report, Policy Interest, Policy Measures, Rate Of Inflation, Treasuries, Underlying Rate Of Inflation
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Roubini: Oil and Gold Look Overpriced

Tuesday, June 16th, 2009

Nouriel Roubini, of RGE Economics, declared at a Reuters Summit Tuesday that Oil and Gold are not reflecting their fundamentals and have come too far too soon.

Reuters: Oil and gold are overvalued at current prices, which do not reflecting their market fundamentals, economist Nouriel Roubini said at the Reuters Investment Outlook Summit on Tuesday.

Roubini, who is known for having predicted the financial crisis that rocked the global economy in the past two years, painted an economic backdrop of deflationary risks and warned that if oil keeps climbing toward the $100 level it would deal an “economic shock” similar to the one last seen in 2008.

The recent rally in oil, which sent prices to an eight-month high above $73 per barrel, was “too high too soon,” Roubini told the Reuters Investment Outlook Summit in New York.

U.S. crude oil reached a record high near $150 per barrel in July 2008 based on overly bullish global demand expectations, but prices have since more than halved with the global economic slowdown.

Roubini, who is chairman of economics research firm RGE Monitor, said the current price of gold looks overextended as deflation is likely to outweigh any risks of inflation in the near term.

“For the next two years, deflationary pressure is going to be dominant, and it is going to become a time bomb down the line if and when we keep monetizing large deficits. It may be too soon to hedge with gold,” he said.

“Unless we have high inflation, or…other risks like depression, gold looks toppy,” he said.

Gold could spike again whenever there is rising risk aversion, he said, though noting that bullion prices had declined after the Lehman Brothers debacle in September last year.

Source: Reuters, June 16, 2009

Tags: Bullion Prices, Crude Oil, Current Price Of Gold, Debacle, Deflation, deflationary pressure, Economic Backdrop, Economic Shock, Economics Research, Global Demand, Global Economic Slowdown, Global Economy, Gold, Gold Bullion, Investment Outlook, Lehman Brothers, Market Fundamentals, oil, Price Of Gold, Reuters, RGE Monitor, Risk Aversion, Time Bomb
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