Rankings   Forums   Features   Help    

Theo's picture
Bank of Canada holds interest rate steady

As suspected, the Bank of Canada decided to hold interest rates steady.  I know this is getting old here on StokBlogs, and will probably spark a debate yet again, but I feel the need to warn my fellow Canadians.  Not about interest rates, but rather protecting one's wealth from inflation.

According to the article, the bank sees "overall and core inflation rates returning to its stated target of two per cent in the second half of 2008".  Um, hello, has anybody at the Bank of Canada looked out the window lately?  Did they notice wheat prices are at an all time high?  How about oil prices hitting $88?  Yeah yeah I've heard the arguments that core inflation doesn't include volatile items like food and energy.  But unless you don't eat, and you don't use energy, I would suggest questioning some of these statements from the Bank of Canada.  A good starting point would be to check out Reco2308's article on commodity price increases.

By Theo at 2007-10-16 11:07 | Other | Theo's blog


re: Bank of Canada holds interest rate steady

In percentage terms, the price of oil has increased significantly to $88USD. But oil priced in Canadian dollars has not increased nearly as much over the past 3 years due to currency movements. This helps to reduce the effect of high oil prices on canadian inflation.

Most commodities are priced in USD correct? So the gain that Canadian companies and Canadian consumers see is not as large as you think.

I think I read an article several months back that claimed that all the major cereal producers were essentially unhedged. (Nabisco, General Mills, etc).  Despite this I have noticed a much higher rate of sale prices on dry cereal in the grocery isles in the last year. $/kilogram is often still high - but there is a lot of blanket sales on large numbers of different brands.  I don't think this would be happening if the pricing was increasing so much. However, I do understand that the cereal on the shelf was probably created with last years crop.



By Pat at Tue, 2007-10-16 12:49 | login or register to post comments

re(2): Bank of Canada holds interest rate steady

Here are some very quick calculations to point out that inflation is MUCH HIGHER than 2% in Canada despite the move in our currency.  You may find some errors as I did it fast, but it doesn't take a genius to figure out that a 200% rise in energy prices over the past 4 years is much higher than the reported numbers:

CAD vs USD

2003  0.65
2007  1.02
     
     
OIL (USD)

2003  $27.54
2007  $88.00

        +320%

     
OIL (CAD)

2003  $42.36
2007  $88.00

       +207%



By Theo at Tue, 2007-10-16 13:26 | login or register to post comments

Inflation in base materials dispite CND move.

Not to nitpick, but 42.37 -> 88.00 is not +207%. It is 207% of the original, but that is only an *increase* of +107%.

So, in USD oil moved 27.54 -> 88.00 or 219% while in CND that move is "only" half that or 107%.


2% inflation would mean a move of +8.2% and 3% yearly inflation, a move of 12.6%. 107% indicates a yearly inflation of 20% (simply a 4th root of 2.07). The problem with calculating inflation is that in a global economy, inflationary effects are greatly retarded. As I keep saying, China/India is (were?) exporting deflation by reducing "global" wages which allows for price of goods to be kept low (for now) dispire inflation in the base materials (metals, oil).


By adam at Thu, 2007-10-18 14:35 | login or register to post comments

Nitpicking

I don't see how food and energy are volatile when all they seem to do is go up. That's a trend, not volatility.
By smtkr at Tue, 2007-10-16 15:58 | login or register to post comments