The price is wrong in Argentina

By David Agren - Thursday, May 2, 2013 at 2:00 PM - 0 Comments

Photo by Charly Diaz Azcue/LatinContent/Getty Images

The Parrilla la Luli in Buenos Aires grills thick cuts of beef, accompanied by big bowls of salad, copious cups of Malbec and surly customer service. Prices are pencilled in on faded menus—no reflection of the restaurant’s down-market decor, but rather of runaway inflation, which independent economists peg at 25 per cent. That’s more than twice the official rate of approximately 10.6 per cent—a number the International Monetary Fund (IMF) considers so corrupted that it censured Argentina, the third-largest economy in Latin America, for fudging its official financial figures. “The Argentine [economy] can be characterized by [a level of] inflation, which no one recognizes,” says Sergio Berensztein, an independent political analyst in Buenos Aires.

Such is the state of affairs in Argentina, where politics permeates everyday economic activities. Inflation is so sensitive that the government has prohibited the publication of independent estimates and sacked and prosecuted staff in the statistics service. It has also recently frozen fuel and food prices.

It’s just the latest sign of trouble in a country with a history of economic collapses—most recently in 2001, when it defaulted on $95 billion in debt and devalued the Argentine peso. Not surprisingly, many Argentines have sought to safeguard their savings by snapping up assets such as apartments and automobiles, along with U.S. dollars, which became scarce with the implementation of currency controls. The controls are an attempt to keep U.S. currency in the country, mainly because Argentina has been unable to access international capital markets since its 2001 default. The controls also came as holdout bondholders from the default pursued and won a $1.4-billion judgment in a U.S. court. Argentina refuses to pay the holdouts, which it brands “vultures,” a decision that could ultimately lead to another default, says Berensztein.

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So long, penny. Why don’t you take the nickel and the dime with you, too?

By Alan Parker - Monday, February 4, 2013 at 9:00 AM - 0 Comments

(Jonathan Hayward/CP)

The Royal Canadian Mint is finally beginning its phase-out of the penny today — and not a minute too soon.

The penny hasn’t made a lick of sense since penny candy started costing more than one cent — and that was before Lester Pearson became prime minister. It’s been costing taxpayers more than its face value to produce since the 1980s.

So good riddance to the feckless penny. Now the Mint should seriously think about getting rid of a couple of other coins that have outlived their usefulness — the nickel and the dime.

Why? Because a century of inflation has robbed them of intrinsic value.

According to the Bank of Canada’s inflation calculator, the Canadian dollar of 1914 had the purchasing power of about $20 in today’s dollars. So a penny then had the purchasing power of 20 cents today. Likewise, a nickel had roughly the same value as a dollar today and having a dime in your pocket a century ago was the same thing as having a toonie now.

The humble penny may have had even more worth back then than the Bank of Canada gives it credit for. Consider that 100 years ago most daily Canadian newspaper cost one cent. The price in competitive Toronto did not rise to two cents until 1917 and that new price held for more than 20 years. Compare that to what you pay for a newspaper today and you get some sense of the real worth of a penny a century ago.

So the penny, nickel and dime were all useful, valuable coins — 100 years ago. Today they just wear needless holes in your pocket or collect in a jar.

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With inflation stuck, expect interest rates to stay at rock bottom

By Erica Alini - Friday, November 23, 2012 at 12:04 PM - 0 Comments

As TD Economics’ Francis Fong put it this morning, “Canadian inflation was stuck in neutral in October.” Consumer prices edged up a meagre 1.2 per cent last month compared to the same month in 2011, Statistics Canada said today. Meat and gasoline prices provided some upward pressure, rising by five and four per cent respectively on year-ago levels, but natural gas costs offset that, continuing a trend of steep year-over-year declines with a 11.6 per cent fall in October. Lower mortgage interest costs, which decreased 2.6 per cent, also helped keep a lid on consumer prices, as did “heightened retail competition (domestically and from the lure of cross-border shopping),” said BMO’s Robert Kavcic.

Consumer prices have been declining since May 2011. The Bank of Canada’s measure of core annual inflation, which strips out volatile energy and food prices, is registering similarly paltry growth, edging up 1.3 per cent in October. That’s well below the BOC’s target of 2 per cent inflation, meaning there’s ample margin for the Bank to keep its benchmark interest rate at rock bottom for the foreseeable future.

Five stories we’re watching

By macleans.ca - Sunday, September 23, 2012 at 5:00 PM - 0 Comments

The political workweek of Sept. 17-21 churned up five stories the endings of which have yet to be written.

1. Treasury Board President Tony Clement promised reforms to the lobbying laws. More public servants will be covered, Clement said on Sept. 17, not just the top echelon of mandarins. But he seems unwilling to close a key loophole: in-house arm-twisters for companies and interest groups who spend less than 20 per cent of their time lobbying still won’t have to publicly disclose their contacts with government. So, will Clement’s reform package, still months from being tabled, draw more critical attention to such gaps than positive reviews for any improvements?
2. Prime Minister Stephen Harper’s about-face on China—from tough-on-human-rights to wide-open-for-business—arguably has been the key foreign-policy maneuver of his six years in power. And that shift seemed to pave the way for federal approval of a Chinese state-owned corporation’s bid to buy Canadian oil company Nexen. But on Sept. 18, Ted Menzies, a Tory MP well worth listening to as junior finance minister, bluntly stated that he’s heard “many concerns” about the deal. Does Menzies’ remark signal that rejection of the deal is more likely than many previously thought?
3. The Conservatives have made enhancing Canada’s Arctic sovereignty a pillar of their political image-making efforts. Funding the search for Franklin’s lost ships fits the bill. But news on Feb. 19 from U.S. scientists of what one researcher called “a stunning loss of sea ice” in the Arctic this past summer, to record low ice and snow cover, should raise the stakes. After all, the Tories canceled funding for the Canadian Foundation for Climate and Atmospheric Sciences. If the Far North really matters, they may need to rethink their commitment to understanding climate change.
4. Also on Sept. 19, Justice Minister Rob Nicholson said he would appeal an Ontario court ruling that struck down a Conservative criminal law reform from 2008, which put the onus on certain criminals to prove they should not be designated dangerous offenders, rather than requiring the Crown to prove they should be. This latest in a string of clashes between the Conservative government and the courts comes just after the Tories said they’d appeal a Quebec judge’s ruling that the province’s government should be able to keep the data from the scrapped gun registry. It’s a pattern of growing interest; battling the courts, rather than the parliamentary opposition, could emerge as the defining dynamic of Harper’s tough-on-crime agenda.
5. The workweek ends with Statistics Canada reporting that inflation slowed more than expected last month, a sign of the economy’s worrying lack of vigor. This comes after recent news that factory sales are down, the trade deficit it up, and building permits—a key indicator of housing-market action—have slumped. Politically, the question is, Does Stephen Harper benefit by selling his Conservatives as reliable managers for uneasy economic times, or does Thomas Mulcair capitalize if voters decide things aren’t going all that well under current management? The politics of party brand strengths will matter if the economy doesn’t pick up in the months ahead.

StatsCan urged to change inflation measurement to capture true cost of housing

By The Canadian Press - Wednesday, September 12, 2012 at 2:28 PM - 0 Comments

OTTAWA – The C.D. Howe Institute says inflation may be higher than currently assumed because of Canada’s climbing house prices.

The think-tank says in a new paper that Statistics Canada needs to change the way it measures housing costs that doesn’t take into account today’s unusually low interest rates.

Philippe Bergevin, a senior policy analyst with the institute, says housing should be treated as any other commodity and measured based on actual sale prices of homes.

That would more accurately reflect the strong run-up of real estate prices since the recession.

Bergevin says a truer picture of inflation might make it more difficult for Bank of Canada governor Mark Carney to stick to with low interest rates for such an extended period.

Carney has kept the bank’s trendsetting policy rate unchanged at one per cent for two years, and many are expecting it will remain at the current level until well into 2013.

Statistics Canada has been urged to change the way it measures changes in cost of living for several years, but until now most analysts believed the agency was over-estimating price increases by about half a percentage points a year.

For all her charms, Argentina’s Cristina Fernández can’t tame inflation

By Gabriela Perdomo - Tuesday, March 20, 2012 at 12:58 PM - 0 Comments

Enrique Garcia Medina/Reuters

“She had an elegance, a beauty, a warmth . . . and she loved having her picture taken.” That’s how famed photographer Platon described Argentinean President Cristina Fernández after taking her portrait for The New Yorker in 2009. Vanity, after all, is one of the politician’s defining traits. And it extends to everything from her sumptuous wardrobe, crafted by a personal fashion designer, to her unlimited political ambition.

Fernández, first elected in 2007, secured a second term in office last year with 54 per cent of the vote. It wasn’t her plan to become president again. But Néstor Kirchner, her husband of 35 years and the previous head of state, who planned to come back to succeed her, died suddenly of a heart attack on Oct. 27, 2010. The other half of the so-called “presidential marriage” suddenly found herself seeking re-election as candidate of the Peronist, social democratic Justicialist Party (PJ). Fernández, well aware that a wave of sympathy after her husband’s death played a role in her re-election, continues to wear only black, constantly evoking his memory in public speeches. In the face of criticism over the government’s handling of a train crash that killed 51 people in Buenos Aires, she said last month she couldn’t possibly be insensitive to the pain of the victims’ families. “I know what death and pain are,” she said. “I need you all to hug me tight. Because the one who used to hold me is no longer here.”

Fernández was never just the woman behind the man. When Kirchner took office, she was his closest adviser. Together, the duopoly has been running the country since 2003. But the Fernández period, which was marked first by economic recovery, has lately come to be known for skyrocketing inflation, a growing wealth gap, rifts with neighbouring countries, and distrust of the government. Growing discontent was recently met with an attempt to ramp up patriotic fervour by reigniting the old Falkland Islands dispute with Britain—right on time for the 30th anniversary of a botched military invasion by Argentina’s dictators.

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In conversation: Mark Carney

By Andrew Coyne - Monday, December 5, 2011 at 11:10 AM - 2 Comments

Blair Gable

He’s among the most respected voices anywhere on financial regulation and monetary policy, and the Canadian closest to the centre of efforts to solve the European debt crisis. Governor of the Bank of Canada since 2008, Mark Carney, 46, was also recently named head of the Swiss-based Financial Stability Board. He’s a leading figure in the struggle to shore up a fragile world economy.

Q: Let’s talk about Europe. You hear people saying we may be in the last days of the euro. What is the way out of this crisis?

A:Let me say two things. One, there are longer-term issues that absolutely have to be addressed. They have to rework the way the monetary union functions—fundamental questions of competitiveness in these economies—which require multi-year reform programs. Those absolutely have to be done for this thing to work in the medium term—and there’s no point saving it in the short term, if it’s not going to work in the medium term. But in terms of creating the bridge so there’s time to do all of that, we have long advocated that they create a mechanism—a firewall—that ensures that all eurozone countries can fund themselves at sustainable rates for the next two, three years. And that is a requirement that is at least on the order of a trillion euros.

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Are you smarter than a central banker?

By Erica Alini - Tuesday, November 29, 2011 at 4:46 PM - 12 Comments

At first glance Economia, a video game created by the European Central Bank, looks like an ingenious device to help laymen grasp the basics of monetary policy. The iPhone app (which you can also play on your computer) is sleek, and the game–which NPR dubbed “angry bonds”–is actually fun.

The goal is to keep inflation just below two per cent, and the only way to do so is raising or lowering the exchange rate. As a learning tool, it’s very effective: After a couple of tries, you’ll never forget that hiking up rates brings down inflation, and cutting them does the opposite–a concept that goes a long way to helping people understand headlines featuring the likes of ECB Chief Mario Draghi, Bank of Canada Governor Mark Carney or Fed Chairman Ben Bernanke. After a while it gets so easy it’s boring, but then the game starts throwing all kinds of unpredictables at you–like a housing crisis, a stock market meltdown, rising oil prices… It doesn’t get quite as real as the current sovereign debt crisis–and you don’t get to behave as a lender of last resort–but you’ll have your hands full. If there’s even a little bit of nerd in you, you’ll like it.

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And I was “irresponsible” and “misinformed” how?

By Jason Kirby - Friday, September 30, 2011 at 4:24 PM - 11 Comments

In attacking my recent story What’s the Use of Saving Money? as “irresponsible” and “misinformed,” I’m not entirely sure Peter Aceto, the CEO of ING Direct Canada, read beyond the headline. If he did, he’d know it wasn’t a piece that “discourages Canadians from using savings accounts.”  Quite the opposite. While bemoaning and exploring the demise of the saving culture in this country, our story argued that around the world people are being discouraged from putting away their pennies by ultra-low interest rates and government programs that promote spending (Cash for clunkers, home reno rebates etc).

I won’t go over the content of the original story. I’m confident readers understood it simply aimed to give a voice to the frugal few and their frustration that low rates subsidize borrowers while hurting savers.

The main thrust of Mr. Aceto’s indignant letter is that Canadians who don’t want to buy a house or invest in the stock market have a choice—they can open an ING Direct savings account. It’s true that until ING came along, there were few options for Canadians to earn decent guaranteed rate on their deposits. ING popularized at least the idea of saving with that Dutch bloke and his accented “Save your money” catchphrase. ING pays 1.5 per cent with its standard high-interest savings account. Ally Financial, which in a past life was the financing arm of General Motors until a bailout came and washed away all its problems, offers 2 percent to its clients. (You can earn more with both if you put the money into longer-term GICs.—five-year GICs pay 2.5 per cent at ING and 2.75 per cent at Ally.)

That’s great, but in the year since ING raised its savings rate from 1.3 per cent to 1.5 per cent, there have been seven months where year-over-year increases in the Bank of Canada’s core consumer price index exceeded that rate. The core rate also excludes eight of the most volatile components (fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; fuel oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers’ supplies). Excluding those items helps the Bank better determine the long term trend of inflation, but they’re still products Canadians buy and must pay more for. Much more in some cases. According to Statistics Canada, in August food prices were up 4.4 per cent.

Contrary to what Mr. Aceto claims, I didn’t say Canadians should be investing rather than saving. I made no suggestions whatsoever for what Canadians should do with their money, because there is no easy answer. The housing market looks like it’s in a bubble, the stock market is terrifyingly volatile, and savings accounts are not keeping pace with inflation. That’s just the sad reality for savers today. And it’s why many more savers are likely to throw up their hands and ask “What’s the point?” For the record, and for Mr. Aceto, I believe that’s a bad thing.

Here are some more thoughts on the topic from south of the border. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, is retiring tomorrow and takes a parting shot at ultra-low interest rates:

“What you do when you artificially hold rates down is ask the savers to subsidize the debtors. In an emergency and a crisis that is justifiable, perhaps,” he said.

But to do it repeatedly and indefinitely risks distortions in the market and creating unintended consequences and eventually inflation, he warns.

“It would be better if we were not as accommodative so the market could function and send out proper signals,” Hoenig said. “I think interest rates would be low. I just don’t know how low.”

Before I finish I want to also take an opportunity to thank Garth Turner, the former MP and financial commentator for his help rustling up folks for us to talk to for our original story. After I asked Garth if he knew anyone who felt like a chump for being prudent in the face of all the incentives to borrow and spend, he put out the call on his popular www.greaterfool.ca site and sent me dozens of emails from people who responded to his message. The request clearly hit a nerve.

What’s the use of saving money?

By Jason Kirby and Chris Sorensen - Tuesday, September 27, 2011 at 9:30 AM - 39 Comments

Getty Images; Photo Illustration by Taylor Shute

Steven Patterson and his family moved to Vancouver from Cambridge, Ont., in mid-2008, just as the financial crisis hit. After years of scrimping and saving to pay off their first mortgage, they had earned a tidy profit when they sold the Cambridge house and put the proceeds into GICs, where the money would be safe and easily accessible should they decide to buy another home in B.C. Three years later, Patterson, a 42-year-old IT manager, is still sitting on the sidelines, renting, while real estate prices march ever upward in a city where a three-bedroom bungalow covered in warped siding can fetch $1 million.

That might seem like a prudent move in an uncertain economy, but Patterson says his cautious approach has come at a steep price: all his money is steadily being eaten away by inflation, which the meagre interest income from his GICs can’t cover—particularly after the taxman takes a cut. Meanwhile, several of Patterson’s friends have taken advantage of those same low interest rates, loaded up on debt, and bought into Vancouver’s frothy housing market in recent years. And they have enjoyed a windfall—at least on paper—as the value of their homes continues to climb. As for Patterson, “I’m only a few thousand dollars ahead—minus inflation,” he says, clearly frustrated. “So actually, I’m way behind, and I don’t have a house.”

Welcome to the world of ultra-low interest rates, where profligacy is richly rewarded and saving is, well, for suckers. Those who’ve opted to be austere with their personal finances have found themselves on the losing end as governments and central bankers have worked to get people to borrow and spend in the wake of the global recession. While emergency interest rate cuts were to be expected after the financial crisis seized up lending markets, it’s been nearly four years since central banks started slashing rates to the lowest levels in history. For that matter, over the last 10-year period, following the 9/11 terrorist attacks, the Bank of Canada’s benchmark interest rate stayed above four per cent for just six quarters (in 2006 and 2007), while the average headline rate of inflation over that time was 2.1 per cent.

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Inflation pace cools in June

By macleans.ca - Friday, July 22, 2011 at 10:52 AM - 0 Comments

Rising gas and food prices have not increased the pace of inflation, The Globe and Mail reports. In fact, Statistics Canada confirmed that the annual inflation rate has actually decreased, from 3.7 per cent in May, to 3.1 per cent in June. The agency says lower prices for passenger vehicles and lower travel accommodation costs have contributed to the decline. Sources say the news will reduce pressure on the Bank of Canada to act on interest rates.

The Globe and Mail

Central bank battle

By Jason Kirby - Thursday, July 21, 2011 at 12:00 PM - 0 Comments

Cheap money pumped out by central banks has sparked a speculative frenzy in the commodity sector that has driven up prices for everything from gasoline to Corn Flakes.

Or it hasn’t, depending on who you ask.

It’s become one of the most critical economic debates facing the world, and it’s pitted the Bank of Canada against Japan’s own central bank. Last week, a BoC study concluded “financial speculation seems to have played a modest role” in rising commodity prices,” and that “the available evidence points to global demand and supply conditions” as the real cause. That’s in contrast to a report published three months ago by the Bank of Japan. While demand from emerging economies has driven prices, the BoJ admitted, “speculative investment flows…have amplified the intensity of the price surge.” And the jump in speculative money can be tied directly to lax monetary policies, it said.

Maybe the faceoff simply comes down to perspective. Resource-rich Canada will benefit enormously if the rise of commodities is in fact due to a permanent shift in demand. With almost no resources of its own, Japan can only hope that as central banks tighten the reins, speculators abandon their bets on commodities, and prices finally fall back to Earth.

Celeb-onomics

By Erica Alini - Monday, July 11, 2011 at 9:20 AM - 0 Comments

Getty Images, ISTOCK; Photo Illustration by Lauren Cattermole

Want to get people to pay attention to that driest of issues: monetary policy? Get a Hollywood celebrity to tweet about it. Better still, one whose resumé includes rehab, house arrest and an alcohol-monitoring ankle bracelet. That’s what the National Inflation Association, an organization that describes itself as “preparing Americans for hyperinflation,” did last week. It paid Lindsay Lohan to slam the Federal Reserve on her Twitter account. It read: “Have you guys seen food and gas prices lately? U.S. $ will soon be worthless if the Fed keeps printing money!” The tweet, initially attributed to Lohan herself, quickly made the rounds in gossip, mainstream and business media. It may have helped focus minds on macroeconomics (albeit briefly), but the tweet did little to improve Lohan’s image, after reporters pointed out that the NIA’s main aim appears to be pitching investors on penny stocks and that the group is not the conservative non-profit the starlet said she believed it to be.

Importing trouble

By Erica Alini - Tuesday, May 24, 2011 at 11:10 AM - 0 Comments

Economic doomsday types who predict a coming era of out-of-control inflation usually point to the sinking U.S. dollar as one of the chief culprits. (A falling dollar means it costs more to buy goods, and purchasing power falls.) But they may be worrying about the wrong problem. According to data from the Federal Reserve, the impact of a weak U.S. dollar on import prices has in fact been steadily declining from the 1980s into the early 2000s. This is in large part because China dominates the U.S. import market, and Beijing keeps the yuan fixed against the dollar. The peg erases the effects of currency fluctuations on imports from China, which is why core inflation didn’t rise much even as the dollar lost value. (The dollar’s weakness, in turn, has guaranteed low price tags for Chinese products across the globe, dampening inflationary effects worldwide.)

Now, though, that lid on prices appears to be coming off, and China may become the real source of inflation in the U.S. and elsewhere. From Jiangsu to Guangdong, the country’s most industrialized provinces are experiencing double-digit wage hikes. When auto workers in southern Guangdong went on strike last year demanding higher pay, local companies and foreign manufacturers got a taste of what’s to come as younger and more outspoken workers enter the labour market. Also, China’s labour force is shrinking. The results of the latest population census, conducted in 2010, show that China’s replacement rate is already below the average of the United States, the United Kingdom and France, and on par with countries such as Italy and Japan. Employers in China are already struggling to find new hires. Rising prices are also the product of Beijing’s attempts to stimulate domestic demand, and diversify the economy away from exports.

All this means that “we have moved from an era of easy deflationary environment to one of inflation,” development economist Jeffrey Sachs told the Wall Street Journal. From sneakers to barbecue sets, there soon may be no more cheap, made-in-China consumer goods to help the West keep inflation in check. Higher prices, then, could indeed be on the horizon for the U.S. (and the rest of the world). But that may be regardless of the dollar’s recent misfortunes.

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High-price problems

By Chris Sorensen - Friday, April 29, 2011 at 7:50 AM - 1 Comment

Richard Buchan/CP

The Oklahoma chapter of the American Automobile Association has been forced to respond to hundreds of extra calls from stranded motorists who decided to postpone their next fill-up after the price of gas soared over 19 per cent in the past three months. Meanwhile, in Florida, a gang of thieves reportedly stole six tractor-trailers full of tomatoes in an apparent bid to cash in on soaring prices of fresh produce.

There’s no shortage of examples these days as to how rising prices cause people to do odd things, and cause real instability. And it’s the reason why central bankers around the world, including in Canada, are suddenly waking up to a growing inflationary threat. In fact, it would appear the Bank of Canada (along with most economists) was caught off guard by recent data from Statistics Canada that showed the Consumer Price Index— which measures the price of everything from food to mortgage insurance—rising 1.1 percentage points in March, to an annual rate of 3.3 per cent. It was the largest monthly jump since Canada introduced the GST in January 1991, according to BMO Financial Group.

“We now have an inflation rate at 3.3 per cent and the Bank of Canada’s overnight rate at one per cent, which is the largest gap since the 1970s,” says Douglas Porter, BMO’s deputy chief economist. “Inflation is also now above the prime lending rates, which is three per cent. And that is highly unusual—we’re now in a situation where it almost pays to borrow.”

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Econowatch: April 2011

By Jason Kirby - Thursday, April 14, 2011 at 10:35 AM - 5 Comments

If you tried to count the worries investors face today, you’d soon run out of fingers and toes. We’ve seen rising inflation, unrest across the oil-rich Arab world, a U.S. fiscal crisis and sovereign debt woes in Europe, any one of which might have kneecapped a lesser bull market. Not this one. Two years into the strongest rally ever, not even the prospect of nuclear fallout and the collapse of the world’s third-largest economy is cause for concern.

There are basically two ways to view what’s going on right now. One is that a fundamental disconnect has occurred between market sentiment and reality. In this scenario, investors have affixed blinders to obscure all that ails the economy. In other words, the markets are driven by momentum. When that momentum stalls, look out below.

The other possibility is that all these fears are overblown. Investors have learned from the stock market rout and correction of 2009 not to lose their heads at the first (or even umpteenth) sign of trouble. Instead, some argue there are real reasons to be optimistic: corporate profits are robust, manufacturing is on the upswing and gains in the U.S. job market are picking up speed.

The ultimate test of which scenario is behind the rally will come this year. Central banks are expected to tighten their monetary policies. Interest rates will rise and the virtual printing presses that created trillions of dollars in new money will shut down. With the end of easy money, investors will inevitably become more attuned to risk. Meanwhile, an important crutch that has helped prop up the recovery so far will be gone. If we’re fortunate, both markets and the economy will remain resilient. If not, we’ll look back and wonder why investors ignored so many obvious signs of trouble.

By the numbers

11 The percentage of homes in the U.S. now sitting vacant. In many vacation areas across the country, hit particularly hard by the downturn, vacancy rates are over 60 per cent.

50 The number of years of oil supply that may be left in the world, given current supplies and demand, notes a senior economist with HSBC.

428 The number of KFC, Pizza Hut and Taco Bell franchises in Canada owned by Prizm Income Fund, which has filed for court protection from creditors.

106,000 The number of high-tech jobs that will need to be filled in Canada in the next five years as the dot-com boom returns, notes an industry report.

$4.9 billion The amount U.S. hedge fund manager John Paulson earned in 2010 after betting big on the economic recovery.

Signs of the times: conspicuous consumers

*The U.S. housing market may be in brutal shape, but billionaire Russian investor Yuri Milner just plunked down US$100 million for a California mansion. Milner is an investor in Facebook, Groupon and game-maker Zynga. A sign of life in the housing sector, or just another oligarch with too much money to burn?

*Saks Fifth Avenue had to limit customers to six one-ounce packages of La Prairie’s latest skin care product. The price: $500 each. American consumers, it seems, are flooding back into the US$2.7-billion “prestige” skin care market. No sense looking like you just weathered a Great Recession.

*Subprime mortgage bonds—three words that would have sent investors screaming until recently—have been making a comeback. The bonds, which are backed by thousands of poor quality mortgages, have doubled in value to 60 cents on the dollar since early 2009, as investors have rediscovered their appetite for risk.

*President Barack Obama, an admitted “crackberry” addict, has been a boon to Research In Motion’s marketing campaign. But Obama told reporters he now has an iPad, too. Is that a bad omen as RIM readies to launch its PlayBook tablet?

A reason to love cheetos

By Erica Alini - Thursday, March 17, 2011 at 9:56 AM - 0 Comments

Ballooning food prices are throwing much of the developing world into disarray, but in rich countries, and particularly in the U.S., consumers have mostly continued to roll through the grocery aisle blissfully immune from the double-digit increases that many credit for sparking riots in the Middle East. In the U.S., the price tag for food at the supermarket inched up only 0.3 per cent in January.

The reason for this, according to a recent CitiGroup report, is—to put it bluntly—that most of what we eat isn’t really food. “For better or worse,” notes the study, “this reflects the very high processing content of food.” In processed foods, in fact, price hikes for basic ingredients can be easily absorbed by slimming production and marketing margins. More evidence of this comes from the calculations of Mark Perry, an economics professor at the University of Michigan-Flint. He has found that finished consumer food products in the U.S. have floated only three per cent above or below the average price for their last 10 years, while raw-food commodities, meanwhile, have swung 14 per cent on average. Cheez Whiz, Pizza Pops and other processed foods may not be healthy, but, it seems, they are at least a helpful ally against food inflation.

Bright idea: stealth inflation

By Jason Kirby - Friday, February 25, 2011 at 3:17 PM - 3 Comments

Rising prices sparked riots across Africa and the Middle East but, fortunately for North Americans, inflation has barely budged, right? Maybe not. The inflation rate in the U.S. in January was just 0.4 per cent, even though prices for raw materials—like cotton, wheat, metals, oil and wood—have soared worldwide. How are companies holding prices steady? By giving shoppers less for the same money.

An analysis of 10 products in the U.S. by Consumer Reports found packages are getting smaller: Ivory dish detergent shrank from 30 ounces to 24 ounces, Classico pesto sauce from 10 ounces to 8.1 ounces, Kraft American cheese from 24 slices to 22 slices, and Häagen-Dazs ice cream from 16 ounces to 14 ounces. According to Peter S. Cohan & Associates, a consulting firm, assuming prices stayed the same, the smaller packaging translates into an average price inflation of 12.2 per cent—far above the official rate. Call it inflation by stealth.

This week: Good news, bad news

By macleans.ca - Saturday, February 12, 2011 at 9:47 AM - 2 Comments

GOOD NEWS

Eleven abandoned puppies were rescued from an Ottawa dumpster (Ottawa Humane Society)

Undefending the border

Prime Minister Stephen Harper emerged from a meeting with Barack Obama last week with an agreement in principle on a common security perimeter. The pair are turning bureaucrats loose on a bilateral search for ways to protect the world’s largest international trading relationship from 10 years’ worth of accumulated border obstacles. Ideas range from shared cargo inspections to a second Detroit-Windsor bridge, but the mere will to restore the Canada-U.S. friendship to its old, friendly terms may be more valuable than any particular tech or law measure.

Yes, it is ethical oil

Meanwhile, a U.S. Department of Energy report issued on the eve of the Harper-Obama announcement provided hope for Transcanada Pipelines in its quest to nab U.S. regulatory clearance for the Keystone XL project connecting Alberta oil markets with the Gulf of Mexico. The report confirms the pipeline would be unlikely to affect net global carbon emissions, but would relieve the dependency of U.S. refiners and end-users on Middle Eastern and other oil—shifting profits to Canada without significant greenhouse consequences.

One last ride

Mark Kelly, astronaut husband of wounded congresswoman Gabrielle Giffords, displayed an impressive, old-school devotion to duty in resuming preparations to command April’s final mission of the space shuttle Endeavour. With Giffords stable and undergoing rehab, Kelly passed a special round of tests of his ability to concentrate on critical tasks. A NASA spokesman said that the three-time space traveller’s presence would “reduce the overall mission risk.”

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Rising prices and revolution

By Chris Sorensen - Friday, February 11, 2011 at 1:08 PM - 5 Comments

Inflation isn’t normally associated with serious social upheaval, at least not in Canada, but recent events have shown that spiralling prices can have profound effects on emerging economies. The chaos in Egypt, much like the uprising in Tunisia earlier this year, can be blamed in part on inflation—namely rising food and energy prices that have left jobless Egyptians feeling desperate.

It’s an especially sharp problem in developing countries where a substantial portion of income is spent on food. But even big global players are growing concerned lately. China, for instance, is worried that rising prices are making the cellphones, dishwashers and clothing churned out by its manufacturing sector less attractive to foreign buyers. And no country, it seems, is more sensitive about inflation than Argentina. Independent firms have pegged inflation there as high as 25 per cent, more than double the official figures, and are reportedly being threatened with government reviews of their methodology and potential fines of $125,000.

What’s behind all this inflation trouble? According to a recent Scotiabank report, the run-up in prices is fuelled mainly by soaring commodities, thanks to a combination of reduced global supplies of everything from grains to vegetable oils (many producers cut capacity during the recession while bad weather has ruined crops) just as demand in many parts of the world is beginning to rise with the recovery. But some have also singled out a weak U.S. dollar as a key culprit. Four months ago, the U.S. Federal Reserve launched a second round of quantitative easing—essentially printing money to juice the economy—by buying US$600 billion in U.S. government bonds. China and other developing nations say the move is causing money to flood into their economies, further pushing up prices of food, energy and other commodities, while also forcing their currencies higher.

Not surprisingly, U.S. Fed chairman Ben Bernanke has dismissed the criticism by blaming developing countries for failing to properly manage their own monetary policies—a fair point, although one that is likely to fall on deaf ears once the citizenry has taken to the streets in protest.

Athens’ budget blues

By Jane Switzer - Wednesday, September 22, 2010 at 10:00 AM - 0 Comments

Aristidis Vafeiadakis/Zuma/Keystone Press

While struggling to reduce its massive national debt, Greece discovered long-dead pensioners have been continuing to receive retirement payments. Deputy Labour Minister George Koutroumanis announced last week that with the help of police, the government discovered that 321 of the people listed as being over 100 years old, to whom it pays pensions, had died.

Koutroumanis described the situation as a “Third World phenomenon” at a news conference, and outlined the inefficiency of the system that led to the “profligacy and theft” of fraudulent pension payments every year. “One pension, for example, was paid to someone who had died in 1999,” he said, adding that authorities are now compiling a pensioner registry and will prosecute fraudsters. The country’s unreliable account-keeping is also believed to have wasted funds on fake jobs, forged health prescriptions and fraudulent government spending.

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A C-note is not what it used to be

By Jason Kirby - Thursday, May 6, 2010 at 8:20 AM - 2 Comments

Getty Images

The U.S. Federal Reserve unveiled the latest version of the US$100 bill last week, and suddenly everyone’s a numismatist. “Might as well be a euro,” mocked the conservative Drudge Report website, while the Business Insider gushed, “Boy, it is sexy.” The buzz centred on the new C-note’s anti-counterfeiting measures—such as a blue security ribbon that changes display as the note is tilted, or the Liberty Bell that shifts from copper to green. But with some economists warning of inflation ahead, it’s worth noting the look of the bill is not the only thing that’s changed over time.

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The runaway economy

By Chris Sorensen - Thursday, March 4, 2010 at 3:00 PM - 9 Comments

When Thomas Hoenig took over as president of the Federal Reserve Bank of Kansas City nearly two decades ago, his 85-year-old neighbour gave him a 500,000-mark German banknote to remind him of Germany’s experience with runaway inflation following the First World War. “He told me that in 1921, the note would have bought a house,” Hoenig said during a recent speech to a U.S. budget commission. “In 1923, it would not even buy a loaf of bread. That note is framed and hanging in my office.”

Hoenig openly admits that invoking historical reminders of hyperinflation might seem overly alarmist in an era when inflation—a rise in the cost of living caused by heightened demand for products or the rising cost of producing them—has ceased to be a major concern for most North Americans. Central bankers have made fighting excess inflation, usually anything more than two per cent to three per cent, among their chief priorities in recent decades (some inflation is generally viewed as a good thing because it signals economic growth). But as the economy comes back to life after an extraordinary period that saw governments—particularly in the United States—resort to unprecedented fiscal and monetary measures to keep the world’s economies from imploding, suddenly there’s renewed concern about inflationary pressures. (Already, Canada saw a surprise jump in its inflation rate in January.) With all that extra money sloshing around in the system—inflation is sometimes thought to be caused by too many dollars chasing too few products—some are worried that the cure prescribed for the downturn could quickly become the recovery’s disease.

While unwanted inflation can be reined in by hiking interest rates, central bankers seem intent on keeping interest rates low to help speed economic recovery. People like Hoenig, meanwhile, say they are worried that a massive buildup of U.S. government debt could also lead to calls for the central bank to print more money to help pay it down sooner, which could also have long-term inflationary effects.

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The soaring cost of Asper’s dream

By Jonathon Gatehouse - Thursday, June 11, 2009 at 12:00 PM - 12 Comments

The country’s newest national museum is deep in the hole, before digging for its foundation has even been completed. Work on the Canadian Museum for Human Rights, in downtown Winnipeg, only began in early April, but the building is already $45 million over budget. When Ottawa agreed in April 2007 to take over the private project—the dream of the late Izzy Asper, founder of Canwest Global Communications—construction costs for Antoine Predock’s soaring, glass castle design had been estimated at $165 million—not including exhibits or the interior. But a combination of inflation, a fluctuating dollar, and the price of importing glass and steel for its unique structure, has since seen costs rise by 27 per cent. “The bulk of this is inflation,” says Patrick O’Reilly, the museum’s chief operating officer. “We hear a lot about the economic downturn, but it has not affected construction costs in Western Canada.”

The museum’s board of trustees, appointed by the Conservative government last August, considered scrapping the landmark design, but ultimately decided the savings would be negated by the costs of replacement plans and construction delays. Instead, they have trimmed $12.6 million from the budget by modifying electrical and ventilation systems, reducing the protective coating on concrete floors and opting for less costly stone for its walls. And they have launched a renewed fundraising push—and an appeal to all levels of government—to try to make up the shortfall. “We’re hoping that current donors will increase their gifts,” says O’Reilly. The City of Winnipeg has so far given $20 million to the project. Manitoba has pledged $40 million, and Ottawa $100 million, as well as $21.7 million in annual operating funds. Premier Gary Doer said last week that his government might be willing to dig a little deeper, if the private sector takes the lead. (The separate fundraising arm “Friends of the CMHR” has so far collected $105 million.) But Heritage Minister James Moore says no additional federal money will be forthcoming. Perhaps an indication that the Tories feel they have done enough for Asper-backed causes, with tax dollars already committed to a new football stadium for the soon-to-be family-owned Blue Bombers, and a bailout of private television broadcasters including Canwest’s Global and E! channels reportedly in the works.

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