Price Increases Leading to Stagflation Continues to Haunt U.S. and Canada
Alex Carrick
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Seed Newsvine |
Price Inflation Heats up in Canada (+3.1%) and the U.S. (+5.0%)
According to Statistics Canada, the year-over-year all-items inflation rate in Canada in June 2008 jumped to 3.1%, its highest level since September 2005. Meanwhile, in the United States, the “headline” inflation rate shot up to 5.0%, higher than at any time since mid-1991. In both countries, the Consumer Price Index (CPI) gain was almost exactly double the “core” inflation rate, which was +1.5% in Canada and +2.4% in the U.S.
Inflation has Spread Worldwide
These numbers on inflation mean that, by the fall, interest rates are more likely to go up than down. The consensus opinion is that they will stay flat through the summer. Price increases are spreading around the world. Even Japan (which has been famous for its deflationary tendencies) has an expectation of inflation this year, probably at about a 2.0% rate. Record world oil prices and rising food costs have been pervasive. The BRIC nations – Brazil, Russia, India and China are particularly struggling with higher prices (6.0% to 10%-plus), as are a number of OPEC nations that are being swamped by their oil revenues.
Food Prices take the Cake
What are some of the major food price increases? High worldwide demand for agricultural products has driven up the price of such staples as wheat and rice. This is reflected in some of the CPI sub-measures. For example, bakery products are +12.3% in Canada and +10.4% in the U.S. In Canada, rice (including rice-based mixes) is +24.8%, pasta products are +35.9% and flour (and flour-based mixes) are +44.5%. Fats and oils are an almost identical +14.5% and +14.3%, respectively, in Canada and the U.S.
In the energy sphere, gasoline prices are +26.9% year over year in Canada. In the U.S., they are +32.8%. The cost of fuel oil is +49.3% in Canada and +61.2% in the United States. High energy costs have also spilled over into public transportation (+9.7%) and air transportation (+14.3%) in Canada.
Pockets of Price Declines are Rare but Welcome
There are a couple of areas where there are price breaks: children’s clothing (-2.3%) and footwear in Canada (-2.7%); women and girls’ apparel (-3.3%) and personal computers (-11.9%) in the U.S. Furthermore, the price of new motor vehicles in Canada has been lowered year over year (-8.4%), partly as a result of the loonie rising to parity with the greenback and also in an effort to retain customers in the face of high gasoline prices.
High gasoline prices, weak auto demand, homebuilding in freefall and ongoing financial market bailouts are placing the U.S. economy under duress. As the impacts of the U.S. economic slowdown work their way around the world, there will be an easing in some price levels. This is already apparent in global oil prices, which have declined by about $20 US per barrel from peak. Nevertheless, the specter of stagflation − high price increases accompanied by low economic growth − continues to lurk in the wings.
