Canada: Economics: Inflation strikes consumer goods, poor to be helped by GST cut, structrl adjustments as Cndn economy climbs
Inflation is pressuring consumers - especially marginal ones like those of us on Disability, Old-Age Pensions, Welfare or other forms low fixed incomes. A government report laid out some specifics showing that consumer prices generally had risen beyond expectations. As a consequence, the value of Canadian government bonds dropped. Another domino is predicted to fall when the central Bank of Canada adds another two raises to its already 5 this year.Blomberg.com indicated today (Apr20,2k6):
The report spurred speculation Canada's central bank will raise borrowing costs twice more this year. The Bank of Canada has lifted its benchmark rate five times since September to 3.75 percent to stem inflation as surging prices in the nation's commodity exports fueled economic growth. Faster inflation erodes the values of bonds' fixed payments.Three days ago, Toronto's Globe & Mail had already signalled negative effects on the Canadian ecnomy resulting from the rise in the value of the looney (the one-dollar piece) which keeps rising in relation to the US dollar and other currencies. Neverthelss, this doesn't seem to be a disaster-trend, but a necessary structural readjustment "keeping supply and demand in balance."
``You have firm inflation,'' said Mark Chandler, senior economist at Scotia Capital Inc. in Toronto. ``The Bank of Canada has to continue tightening to keep it in check. Clearly it makes 4.25 percent more likely than 4 percent.''
According to G&M's economics reporter Heather Scofield, "Economy clipped by rising looney" (Apr20,2k6):
The strong loonie is taking some of the steam out of the hot Canadian economy, notably in the West, a key survey by the central bank shows.A range of other factors effect the trend and are in turn effected by it.
The survey, which plays an important role in the Bank of Canada's decisions on monetary policy, added some uncertainty to economists' predictions for future rate hikes. While most economists believe the central bank will raise rates for the sixth time in a row next week, they say further rate hikes beyond then are a tough call.
About 45 per cent of ... 100 firms ... survey[ed] said they would not be able to meet an unexpected rise in demand. That's high, and a sign that the economy is running close to full capacity, but it's still down from the 50 per cent recorded in the winter survey.A third important current report comes from David Berman, "GST or income tax cut would boost economy," National Post (Apr17,2k6):
Likewise, labour shortages are widespread, with 44 per cent saying they don't have enough workers to meet demand, but that's down from a peak of 51 per cent in the fall of 2005. Hiring intentions are robust, but they've fallen in the past two quarters, especially in the West.
Prospects for future sales, while still slightly positive, have slid steeply, especially in the West, the survey noted.
"Many firms, particularly in Western Canada, indicated that a further acceleration in sales growth is unlikely, given the strong pace of sales recently or because of capacity constraints," the central bank said.
Inflation expectations remain firmly grounded.
CEOs believe the best way to stimulate the Canadian economy through tax cuts is to reduce personal income taxes or the GST, according to a poll done for the Financial Post.Obviously, there's a difference between the financial interestes of the CEOs here, and the budgetary burdens of the poor and much of the middle class. I was happy last nite to hear Prime Minster Steven Harper declare that the government was going to supply tax relief to consumers by cutting a small percentage of General Sales Tax. This will help with groceries, so I'm grateful for this move. - Owlb
The poll, conducted by Compas and sponsored by BDO Dunwoody, surveyed a panel of chief executives and other business leaders.
It found that 37% of respondents thought a cut to income taxes would spur the most economic growth in Canada. Another 34% believed that a one-percentage point cut to the GST -- which is being proposed by the Harper government -- would work best.
"The tax rate on people in the up-to-$50,000 family income [bracket] is obscene," said one respondent. "I support the GST cut because it is real and it affects low-income Canadians."
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