Happy New Year to everyone! Since I like to do at least one post a month and I have been slacking in December today I will take a few minutes today and quickly talk about what we can expect in 2014.
In Canada inflation rates are at very low levels. The surge in inflation that many loose-money critics have predicted has not appeared. This is good because it means that the Bank of Canada does not have to decide if we are going to increase interest rates right away. It would be hard to argue that rates need to increase when we are only at 1.1% core inflation and 0.9% CPI. In fact, if the rates start dropping further then the BoC will start worrying about deflation. Despite their constantly optimistic DSGE model, it is possible that they will actually need to decrease rates in the next year, although this is extremely unlikely. The most likely outcome is that the target overnight rate will be unchanged throughout the year. The only thing that could cause an increase is if the US economy really starts to take off. If they start seeing growth over 3% then we could see a small increase of 0.25 – 0.5% by the end of the year.
All of you cross-border holiday shoppers probably noticed that the Canadian dollar is lower than we are used to in the recent past. It is currently sitting at about 93 cents US. Although we have been sitting at near par levels for some time this change is likely caused more by a stronger American dollar than a weak Canadian dollar. We have briefly discussed the CERI in the past; it is the exchange rate index that the BoC uses. Instead of just measuring our exchange rate vs. the US it includes our six largest trading partners and uses the magnitudes of our trades with them as the weights to come up with an index number. This number uses 1992 as a baseline (100 level). The most recent CERI index is 115. For reference, since the beginning of 2010 the CERI has been as low as 113 in February 2010 and as high as 124 in June 2011. So we are currently on the low side of the last three years but it isn’t a disaster.
The good news is that Canada has maintained growth while our currency has been in slight decline. This is a good thing because a cheaper Canadian dollar means that our goods/services/commodities become cheaper for the rest of the world to purchase. With the US buying about 75% of our exports a weaker currency will actually work out quite well for Canada if the US can manage strong growth this year.
With the derailment and explosion of a train carrying crude oil yesterday in North Dakota I think we can expect the Keystone XL to be approved.
The Olympics will take place in Sochi, Russia. Canada will be attempting to defend its “most gold medals” title. With two suicide bombers in the last week in Russia we can expect some major security changes from Russia. Not known for their delicate handling of terrorists, Russia will likely crack down brutally in the months leading up to the opening ceremonies. As a result, it is possible that we will see a few countries drop out in protest of their methods.
As for Webernet.ca, it lives on for another year. 2014 should see lots of new posts and videos with a focus on videos covering more advanced economic topics.
This is a type-it-and-post-it kind of day. Please forgive any errors, and I will see you all in the New Year.