RED DEER – Food inflation is becoming the world’s next crisis, says a Vancouver-based financial analyst.
“Food inflation is an absolutely terrible problem that is inflicting a lot of the emerging world,” said Mike Levy at the recent Alberta Beef Industry conference in Red Deer.
People in developing countries want to eat better but that demand is placing a huge strain on the world food supply. However, wages in many nations are low and citizens can’t afford to buy many types of food.
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Inflation in Canada is around two percent. Inflation in China is closer to five percent but in one year, eggs have gone up 20 percent and fruit is up 35 percent.
Canadians can also expect higher food prices.
“Are we in for food inflation? You bet we are,” Levy said.
Canada was insulated from inflation because of a low dollar but now that it is around par, higher prices can be expected.
Alberta Agriculture monthly grocer y statistics show some slight increases.
A food basket for a family of four in Edmonton cost $188.78 in January 2010 but by December, the same groceries cost $196.38.
Political upheaval in the Middle East adds to the strain. Nervous markets are driving energy prices higher and if oil surpasses $100 a barrel, inflation will continue.
Higher energy prices are already evident at the pump.
Gasoline was $1.26 per litre in Vancouver while Calgary was 1.05 per litre on Feb. 24.
“I would bet you a buck we are going to be 16 to 17 cents a litre higher by the first of April. Think about how that affects you,” he said.
Natural gas is not likely to rise any time soon because there is ample supply.
Also, watch the copper market because it has been an economic barometer for the last 20 years. Electronics, architecture, biomedical and automobiles manufacturing all require copper.
“As goes copper, as goes the economy.”
“If you start to see copper starting to fall out of bed instead of being $4.25 a pound, you are going to know that the world is sending a message and it is being read through the copper market,” he said.
Still, Canada is in a good position because it is an energy, food and base metal producing country.
“We are a nation of providers. We’ve got what the world wants but it ain’t widgets that are made in Toronto. The economy has shifted to the West and to the Far East,” he said.
“Even if there is a downturn, we’ll get hit, but not to the same extent because this world still has to eat, still has to heat and still has to build things.”
Canadian real estate is also safer compared to the United States, where housing starts are down 14 percent and many homes are for sale with no offers.
However, Canadians cannot afford to get smug. Average Canadian household debt is about $100,000 and since 55 percent of Canadians have home mortgages, their debt is closer to $170,000.
If there is a significant bump up in their payments because of higher interest rates, they may fail to meet their monthly obligations.
“Higher interest rates are going to put a lot of Canadians against the wall,” he said.
Canadians also need to watch the U.S. debt.
In February 2005 the country owed $7.6 trillion. Therefore, each American owed $25,840.
As of Feb. 24 that increased to $14.1 trillion so everyone owes $45,565.
“There is no stop in sight,” he said. Canada’s the federal debt is $560 billion so each Canadian owes $16,506.
Federal governments must be forced to make cuts and balance budgets even if such a move is not politically popular.
