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Economic Optimism

The Royal Bank published a report effectively saying, “Relax, it’s only a bump in the economy“, with a forecast that things economically will not be as bad as first predicted.

The full economic report by Craig Wright the Head Economist at RBC is actually a nice read, with a province by province break down of what the predictions for the coming few months might be.

Being a bit of an inflation zealot I did think the following paragraph is quite interesting:

The RBC report forecasts that Canada’s core inflation rate will likely trend higher this year though remain below the Bank of Canada’s two per cent target. Mitigating factors that have pushed the inflation rate lower, such as the impact of the rising Canadian dollar in 2007 and the retail discounting that Canadian companies have had to offer to compete for market share, will start to dissipate through 2008. By 2009, RBC expects the inflation rate to average close to the two per cent range.

This seems to imply that the rise in Gasoline price will either have subsided or have been absorbed into the economy (or maybe it might drop?). Interesting prediction, I don’t agree with it, I think it is an overly optimistic view.

For Ontario, a little more gloomy:

Ontario is labouring through its softest patch since the early-1990s recession.The provincial economy likely contracted in the first quarter and should
recover only gradually through the remainder of the year.

I think I agree with that sentiment as well.

It’s always important to read these kind of reports to understand the Macro Economy around you, even when you are someone like me who looks closer at the Micro-Economic conditions.

Happy 4th of July

To our American cousins and neighbours we wish a happy 4th of July, and hope you enjoy blowing things up and the Boston Pops.

Feel Free to Comment

  1. Well, the RBC report was referring to *core* inflation, which strips out food and energy. That has been lower than total inflation for quite a few years now, hence the controversy over whether it’s a useful metric or not.

    I heard something recently that should have been obvious to me, but wasn’t: if oil rises to $160, inflation will go up. If it then stays at $160, inflation will drop again. It’s perfectly obvious, but important.

    My *feeling* is that the North American economy is bleak. That would seem to be a good time to invest. As Warren Buffett said: Be greedy when others are fearful, and fearful when others are greedy.

    Thanks for your posts, it must be a lot of work to post something every weekday. Have a good weekend.

  2. I was thinking that myself, if Gas spikes up to $200 a barrel and stays there a month and then drops back to $140.00 it may actually cause de-flation? Fun with numbers, but we are all going to be forking out more dough-re-mi to live the same life.

    As for the postings, it is easy most of the times, as topics jump out in front of me, almost every day.


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