Is the world now in a dual oil-food price shock?
Scotia Capital economist Derek Holt believes so. And while he doesn’t
see it killing the economy, he does see it slowing the nascent recovery.
Oil prices surged Tuesday on the violence in Libya, which represents 2 per cent of global
output. Crude costs have been bouncing around for several weeks now on
the turmoil in the Middle East and north Africa, where a Tunisian
uprising drove out the regime and sparked protests in other countries,
including Egypt. Food costs in turn, have been steadily climbing.
Household balance sheets in both developed and emerging markets, Mr.
Holt said in an interview, are not yet strong enough to withstand
sharply higher energy and food costs.
Some countries such as Britain are already grappling with inflationary
pressures, which puts central banks like the Bank of England in a
dilemma -- whether to hike interest rates to keep prices in check but in
turn threaten their economic recoveries.
“This is getting much more reminiscent of 2008 by the minute as an oil
shock is being imposed upon fragile recoveries, only to be met by
central bank talk of taking the punch bowl away,” Mr. Holt said earlier
in a research note.
In an opinion piece earlier this month in The Financial Times, New York
University Professor Nouriel Roubini, chairman and co-founder of Roubini
Global Economics, pointed out that three of the last five recessions
globally followed a Middle East "geopolitical shock" that drove up oil
prices. In the other two, he noted, oil also played a role.
"Even before the recent political shocks in the Middle East, oil prices
had increased above $90, driven not only by the fundamentals of a global
economic recovery but also by non-fundamental factors: a wall of
liquidity chasing assets and commodities in emerging markets amid
near-zero policy rates and quantitative easing in advanced economies;
momentum and herding behaviour (as in 2007-08); and limited and
inelastic supply of new oil capacity," Mr. Roubini said.
Capital Economics, in a research note Monday, suggested that the unrest
in Libya likely has doubled the “additional risk premium” in oil prices
to about $10 a barrel from $5.
“The unrest in Libya is particularly worrying for a number of reasons,
including the regime’s apparent willingness to use extreme violence
against the opposition,” said Julian Jessop, chief international
economist at Capital Economics in London.
“On top of this, Libya is the first major oil exporter to be engulfed by
the crisis and the first to see any significant disruption to oil
production.”
Mr. Jessop pointed out that such an increase in oil prices is “not
insignificant,” particularly for the weaker economies of Europe that are
already in dire straits because of the debt crisis.
" CAD- Retail sales figures drop in December .."..
" growth in demand shifted to exports from domestic consumption.....
Lower auto sales helped push Canadian retail sales down by 0.2 percent in December, but November’s strong growth was revised up by the same amount, Statistics Canada reported Tuesday.
Excluding auto sales, which were down 2.8 per cent from November, retail
sales actually rose by 0.6 per cent, as expected by analysts. A Reuters
survey of analysts had predicted no change for overall retail sales.
In volume terms that are used to calculate real growth in gross domestic
product, December sales decline by 0.4 per cent, but November’s figure
was also revised up by 0.2 percentage points. All figures are adjusted
for seasonal factors such as Christmas sales.
Data for December so far has tentatively painted a picture in which
growth in demand shifted to exports from domestic consumption, though
retail sales had grown solidly for six straight months. Statscan revised
November’s gain up to 1.5 per cent from 1.3 per cent.
For 2010 as a whole, sales were up 5.1 per cent in 2009 and up 4.5 per cent after adjusting for price increases.
Want to manage currency risk and increase revenue? Learn more about Risk Management
| 
