urbandreamer
recession proof
I am calling for a rise to 8-12% eventually. Crazy, perhaps?
http://www.thestar.com/Business/article/421694
Are interest rates heading higher?
Economic predictions include sharply higher inflation
May 06, 2008 04:30 AM
Dana Flavelle
Business Reporter
From the economist who is forecasting sky-high oil prices by 2012 comes a new and frightening prediction – sharply higher inflation and higher costs of borrowing next year.
Citing rising costs for food and energy, CIBC World Markets chief economist Jeff Rubin said yesterday that Canadian consumers should brace for higher interest rates as well.
"Unrelenting pressure on food and energy prices will see a material acceleration in inflation over the next 12 months," Rubin wrote in his monthly Canadian portfolio strategy outlook.
While the Bank of Canada may still cut its trendsetting rate one more time this year, Rubin said he expects rates will climb a full percentage point next year, to 3.75 per cent. That would raise the cost of borrowing to buy big-ticket items, such as cars and appliances.
The bank's overnight lending rate target is currently 3 per cent, but the central bank is widely expected to cut that one more time, by a quarter of a percentage point, at its next meeting in June.
Rubin's latest forecast comes four days after the U.S. Federal Reserve Board signalled it would pause before its next rate cut. The U.S. central bank has cut rates seven times since last September in a bid to boost a slowing economy and troubled housing market.
The U.S. key federal funds rate is now 2 per cent.
Rubin, who last week predicted oil would rise to $225 (U.S.) a barrel by 2012, said higher energy prices would be good for investors in Canadian stocks.
The TSX composite index will hit 16,200 points by the end of the next year, he said, rising 14.1 per cent over this year, and outperforming the U.S. market for the fourth year in a row.
Energy, materials and agricultural chemicals will do well, while utilities and consumers staples, such as food retailers and producers, will fare poorly as rising grain prices squeeze margins and higher bond yields make utilities less attractive.
Rubin's commentary was released as the price of a barrel of crude oil cracked the $120 (U.S.) level yesterday for the first time.
In the short term, investors could see more market volatility as Canada's banks report their latest quarterly performance, Rubin said. Several Canadian banks have suffered from their exposure to the U.S. subprime mortgage fiasco.
He said the U.S. Federal Reserve Board has "done a good job of calming some of investor's deepest fears." However, even worse inflation in the U.S. is likely to mean fewer rate cuts there as well, he said. He expects the Fed to stop cutting at 1.5 per cent, rather than 1.25 per cent as previously predicted.
U.S. inflation is currently rising at the rate of 4 per cent a year, compared to just 1.4 per cent in Canada.
The rapid rise in the value of the Canadian dollar against the U.S. greenback last fall helped temper inflation by keeping the cost of imports in check. But there are signs the dollar's moderating effect may be coming to an end, according to the Bank of Canada.
Since the middle of last year, core inflation has declined dramatically, mostly due to lower prices for motor vehicles as the Canadian dollar hit par with the U.S. greenback, the central bank noted in a recent monetary policy report.
Bank of Canada deputy governor John Murray said the "pass-through" from exchange rates to consumer prices has declined in recent years, citing "improved monetary" policy and increased trade as reasons. Pass-through refers to the impact of the dollar on the price of imports; when the dollar rises imports become cheaper, when it drops, imports are more expensive.
The central bank responds more swiftly now than in prior years to changes in the inflation rate, using its benchmark interest rate to boost or dampen spending in response to rising or falling prices, an official later explained.
The central bank sets interest rates to keep inflation at 2 per cent.
http://www.thestar.com/Business/article/421694
Are interest rates heading higher?
Economic predictions include sharply higher inflation
May 06, 2008 04:30 AM
Dana Flavelle
Business Reporter
From the economist who is forecasting sky-high oil prices by 2012 comes a new and frightening prediction – sharply higher inflation and higher costs of borrowing next year.
Citing rising costs for food and energy, CIBC World Markets chief economist Jeff Rubin said yesterday that Canadian consumers should brace for higher interest rates as well.
"Unrelenting pressure on food and energy prices will see a material acceleration in inflation over the next 12 months," Rubin wrote in his monthly Canadian portfolio strategy outlook.
While the Bank of Canada may still cut its trendsetting rate one more time this year, Rubin said he expects rates will climb a full percentage point next year, to 3.75 per cent. That would raise the cost of borrowing to buy big-ticket items, such as cars and appliances.
The bank's overnight lending rate target is currently 3 per cent, but the central bank is widely expected to cut that one more time, by a quarter of a percentage point, at its next meeting in June.
Rubin's latest forecast comes four days after the U.S. Federal Reserve Board signalled it would pause before its next rate cut. The U.S. central bank has cut rates seven times since last September in a bid to boost a slowing economy and troubled housing market.
The U.S. key federal funds rate is now 2 per cent.
Rubin, who last week predicted oil would rise to $225 (U.S.) a barrel by 2012, said higher energy prices would be good for investors in Canadian stocks.
The TSX composite index will hit 16,200 points by the end of the next year, he said, rising 14.1 per cent over this year, and outperforming the U.S. market for the fourth year in a row.
Energy, materials and agricultural chemicals will do well, while utilities and consumers staples, such as food retailers and producers, will fare poorly as rising grain prices squeeze margins and higher bond yields make utilities less attractive.
Rubin's commentary was released as the price of a barrel of crude oil cracked the $120 (U.S.) level yesterday for the first time.
In the short term, investors could see more market volatility as Canada's banks report their latest quarterly performance, Rubin said. Several Canadian banks have suffered from their exposure to the U.S. subprime mortgage fiasco.
He said the U.S. Federal Reserve Board has "done a good job of calming some of investor's deepest fears." However, even worse inflation in the U.S. is likely to mean fewer rate cuts there as well, he said. He expects the Fed to stop cutting at 1.5 per cent, rather than 1.25 per cent as previously predicted.
U.S. inflation is currently rising at the rate of 4 per cent a year, compared to just 1.4 per cent in Canada.
The rapid rise in the value of the Canadian dollar against the U.S. greenback last fall helped temper inflation by keeping the cost of imports in check. But there are signs the dollar's moderating effect may be coming to an end, according to the Bank of Canada.
Since the middle of last year, core inflation has declined dramatically, mostly due to lower prices for motor vehicles as the Canadian dollar hit par with the U.S. greenback, the central bank noted in a recent monetary policy report.
Bank of Canada deputy governor John Murray said the "pass-through" from exchange rates to consumer prices has declined in recent years, citing "improved monetary" policy and increased trade as reasons. Pass-through refers to the impact of the dollar on the price of imports; when the dollar rises imports become cheaper, when it drops, imports are more expensive.
The central bank responds more swiftly now than in prior years to changes in the inflation rate, using its benchmark interest rate to boost or dampen spending in response to rising or falling prices, an official later explained.
The central bank sets interest rates to keep inflation at 2 per cent.
