Tuesday, April 26, 2005


It's official: Inflation is back ! (And it may be worse than you think)

Inflation is back. It's official, and you can blame costlier gasoline and other fuels. The tab for common services like a hotel stay and garbage removal are jumping too, as is the sticker price on packaged foods and many other household items. Companies are finding that they can pass on part of their soaring raw-material costs. There is a general consensus among American economic circles that interest rates are on the rise. And this concern is beginning to spill across the border into Canadian economic circles as well.
Typically there is an inflation that the government measures and the 'other' inflation that we are all used to feel but cannot see. Inflation that we all feel but can't see comes in many forms. For example, real estate prices have gone through the roof, so cash buyers are paying through the nose. Borrowers are increasingly resorting to floating-rate and interest-only loans, especially in the U.S., which all but guarantee that they will pay more over the life of their loans. But Canadians are poised to follow suit with the spread of the ever more popular 'Powerlines' and credit cards secured by real estate which, once again, have the deleterious effect of keeping you into debt for the rest of your life.
We all face notoriously soaring insurance premiums, deductibles and co-pays as employers shift more of the burden onto employees. Here in British Columbia, for example, Strata insurance premiums have more than doubled in the past year, with strata corporations - especially the financially weak - having no choice but to allot the extra cost to individual property owners.
Even Alan Greenspan, the once revered Chairman of the Federal Reserve Bank, is now coming under fire. Once known as the 'Maestro' for his impeccable talent at predicting economic behavior, and after being treated like royalty for presiding over the longest economic boom in the nation's history, Greenspan is now being accused by a small but vocal group of economists of presiding over the U.S.'s high consumer debt, low personal-savings rates, declining dollar and potential real estate bubble. And all this comes at a time when the U.S. is dependent more than ever on foreign money to sustain growth.
The dependence on foreign capital, Asian in the West and European in the East, is a great source of concern for Canada as well. As China is becoming a major economic player and is fueling its own economic growth, and as Europe is coming to grip with the reality of an oversold, overstrong, overvalued Euro compared with the relative weakness of many European economies, the worry is that this foreign injection into the Canadian economy will soon evaporate, thus leaving domestic growth without fuel .... the typical Mercedes without gas.
So where does all this leave mundane folks like you and I ? All I can tell my readers and real estate aficionados of my blog is: beware of your mortgages !
Luigi Frascati

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If Canada is as wealthy as it is today is only thanks to Hong Kong and taiwanese money. Now it is time for all chinese to take care of their own.
I disagree. If Canada is as affluent as it is today the merit goes to Canadians of all walks of life, including Chinese-Canadians. Xenophobic statements such as yours do not reflect Canada's present social thread. They are also economically untrue.
Chinese should have started taking care of their own all the way back in 1950 during the time of Chiang Kai-shek.

Luigi Frascati
Why is it that gas price goes up when the cost of crude per barrel decreases. It is today's news that OPEC is reducing the per barrel cost of Arabian crude and yet gasoline at the pump is taking a swing up ?
Hello Freaky_boy,

the interrelation between price of crude and retail price of gasoline is very complex and of a political nature, being the OPEC cartel an oligopoly and fairly divided at that. More specifically, just because Saudi Arabia announces a drop in crude price does not necessarily mean that all the other members of the cartel will follow. And, on the political side of it, price is not uniform for all customers either. Although OPEC publishes an official 'price list', in practicality there is a price for the US, a price for China, a price for Europe ... so that, for example, if the announcement refers to a price drop for the US, that will not alter crude prices in, say, Asia.
I will be writing a post on this topic fairly shortly.
Thank you.

Luigi Frascati
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