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Morning Business Briefing

Oil and the Canadian dollar: We're paying more for food than we're saving on gas Add to ...

Food and gas pains

We’re now at about the 69.5-cent mark for the ever-sinking Canadian dollar, with projections of still further depreciation.

So it’s worth taking a closer look at the impact of the oil-loonie shock on consumers. Because what we’re saving at the gas pump, while nice, doesn’t stack up against what we’re paying for certain other products as import prices rise.

“Although pump prices are falling faster than food costs are rising, Canadians are worse off because they spend about four times more on food than on gasoline,” said senior economist Sal Guatieri of BMO Nesbitt Burns.

As of November, Mr. Guatieri noted, gas prices had fallen 11 per cent from a year earlier, thus bringing down inflation by 0.4 of a percentage point.

But food prices had climbed by 3.4 per cent, adding almost 0.6 of a percentage point.

“Food prices have likely accelerated since November (given the loonie’s further 7-per-cent slide), while the decline in gasoline prices has slowed (pump prices are now actually up from a year ago),” Mr. Guatieri said in a research note.

This all threatens to further hinder Canada’s economy amid the oil rout.

“Alongside elevated debts and job losses in the oil-producing regions, the loss of purchasing power caused by the languishing loonie means households are in no position to drive the economy,” Mr. Guatieri said.

“Exports (and possibly fiscal policy) will need to do the heavy lifting.”

The economist also noted the reverse phenomenon in the United States, where Americans have higher spending power because pump prices have declined, while food prices are “subdued” because of the stronger U.S. dollar.

Of course, as many economists have noted, a stronger U.S. economy can only benefit Canada.

The loonie touched a low point of 69.5 cents today, and a high of 69.7 cents.

This came amid another “perfect” storm for the currency, said currency strategist Adam Cole of Royal Bank of Canada in London.

It all has to do with the drop in oil prices, mounting speculation that the Bank of Canada could cut interest rates next week and “severely risk-averse” markets at this point.

“These three factors are of course not independent of each other, but the fact that BoC policy is perceived to be tightly linked to crude prices is making the relationship with [the Canadian dollar] even stronger than it has been historically,” Mr. Cole said.

Markets tumble. Again

Go back to sleep if you don’t want to look.

Stocks are tumbling around the world again this morning amid the angst over oil prices.

And, in something of a twist, only China has emerged unscathed so far, with the Shanghai composite up 2 per cent.

Tokyo’s Nikkei lost 2.7 per cent, and Hong Kong’s Hang Seng 0.6 per cent.

In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 1.8 per cent and 2.8 per cent by about 7 a.m. ET.

New York futures were up.

“The issue here is that before long people will forget why they are selling, but continue to sell simply due to the fear factor,” said IG market analyst Joshua Mahony.

“Yesterday felt like the beginning of that,” he added.

“U.S. crude inventories actually rose less than expected yesterday, which ordinarily would have been bullish for oil prices, yet once more the trend was the most important thing and everyone is looking for another reason to sell crude.”

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