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CIBC economists Benjamin Tal and Katherine Judge published US-Canada inflation: Mind the gap late Tuesday, outlining the distinctly different ways inflation is expected to affect the two nations as the economic re-opening proceeds.

In short, CIBC believes that a strengthening loonie and a mammoth pile of household debt will keep domestic inflation pressure much more muted than south of the border.

Commodity prices are one of the most obvious indicators of inflation pressure and indeed we have seen significant rallies in recent months. The crude price is higher by 51 per cent year-to-date and the S&P GSCI Industrial Metals Spot Index is up 17.5 per cent.

Importantly, however, the Canadian dollar has been rising along with resource prices because the domestic economy is more resource-intensive relative to other developed countries. It has been apparent that the loonie is tracking the copper price in particular.

The stronger loonie has important implications for the extent to which the domestic economy experiences inflation. Whereas the U.S. consumer is feeling the full brunt of rising commodity prices, a rising loonie makes both commodities and imported goods cheaper here.

Mr. Tal notes that approximately 25 per cent of the Canadian consumer price index, used to gauge aggregate changes in prices, consists of imported goods. The 7 per cent increase in the loonie versus the greenback since the pandemic began puts downward pressure on these prices, limiting inflationary forces.

The extreme levels of Canadian household debt, hovering in record territory above 110 per cent of GDP, remain a national talking point. A less appreciated consequence of this borrowing binge is that it makes the Bank of Canada virtually all-powerful where inflation pressure is concerned.

The high debt loads and hefty monthly payments make domestic consumers more sensitive to changes in interest rates. If Governor Tiff Macklem sees sufficient inflation pressure to raise rates, numerous households struggling with high debt levels would be forced to reduce discretionary spending to make their mortgage payments. The end result would be lower consumer demand and downward pressure on goods and services prices.

These factors will not entirely safeguard Canadians from inflation. There are numerous industries in which the pandemic caused business failures and lower capacity. Restaurants are a good example where closures have reduced supply, and the survivors will likely find it easy to raise prices as consumers scramble for fewer available tables.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Interfor Corp. (IFP-T) Lumber stocks are trying to stabilize after plunging in recent weeks and this stock is no exception. Its price weakness has been viewed as a buying opportunity by management. Last quarter, they repurchased over $20-million worth of shares. As Jennifer Dowty tells us in this stock profile, investors may want to put this stock on their radar screens and wait for selling pressure to be exhausted.

The Rundown

Does your portfolio need bonds if you have a defined benefit pension plan?

A defined benefit pension plan means a reliable, predictable flow of income, kind of like a bond. So are bonds redundant if you’re fortunate enough to be a member of a DB pension plan at work? Rob Carrick has some thoughts.

U.S. Fed faces tough challenge but investors shouldn’t panic even as hints of rate hikes hit markets

Markets threw a mini-tantrum after the U.S. Federal Reserve suggested last week that it was thinking about thinking about raising interest rates. Commentators rushed to describe the Fed’s shift as a hawkish turn, but it was more an acknowledgement of the obvious. The world’s most powerful central bank was effectively saying that rates cannot stay at rock bottom levels forever, especially if inflation proves to be more persistent than originally thought. Investors shouldn’t panic, Ian McGugan tells us. Rather than marking a sudden shift in policy, the Fed’s latest positioning seems like a natural evolution of central bankers’ attempts to nurse the global economy back to health.

No end to whiplash in meme stocks, crypto and more

All year, amateur investors, propelled by a social media frenzy and a bit of boredom, have poured money into risky forms of investments like meme stocks, SPACs and Bitcoin. With the pandemic easing in the United States and the country reopening, many market watchers expected the investment world to return to something resembling normalcy. That has not happened. Over the last month, overlapping investment manias have become even more unpredictable. Special purpose acquisition companies, known as SPACs, a trendy way for companies to go public, have dried up. Investments in digital art — another pandemic favorite — have also slumped. Bitcoin has lost nearly 30% of its value in just the last week. But so-called meme stocks have soared. Erin Griffith of The New York Times takes a look at what’s going on.

These ‘lottery ticket stocks’ have returned 170% in a year - and there’s more upside ahead

A little over a year ago, Robert Tattersall wrote an article suggesting that Canadian investors skip their usual purchase of lottery tickets for the month. Instead, they should invest in a mixed bag of eight oil service stocks which were then trading below a dollar a share. That’s cheaper than a lottery ticket. So how did that work out? Very well, he writes, and there are some lessons to be gleaned.

Investors eye a high mark in U.S. profit growth as inflation fears deepen

Investors are looking ahead to an expected spike in June-quarter profits and the outlook for future economic growth to support a record-high stock market that has many traders fearing a sell-off. For second-quarter earnings, which begin next month, analysts are expecting a 64-per-cent jump over a year ago, the biggest increase for any quarter since the financial crisis in 2009, according to IBES data from Refinitiv. But investors may be difficult to impress after the first-quarter’s blowout results, with many fretting about inflationary pressure that could push the Federal Reserve toward raising interest rates. Caroline Valetkevitch of Reuters reports.

U.S. Fed bank stress tests pave way for stock buyback, dividend bonanza

The country’s largest lenders are poised to start issuing as much as $130 billion in dividends and stock buybacks from next month after the U.S. Federal Reserve gives them what is expected to be a clean bill of health on Thursday, said analysts.

Funds flee cyclically confused copper market

Copper’s long-expected price correction has finally arrived. Bull exuberance has been dowsed temporarily by signals that both the U.S. Federal Reserve and the Chinese authorities are concerned about inflation. But this correction was by no means unexpected, with a sense that the year-long copper rally was running on empty as funds took profits and rotated to other sectors such as resurgent oil. Money manager long positioning is now much reduced and some funds are even starting to build short positions, which is a sign of just how confused the immediate outlook is for the poster child of the supposed commodities supercycle. Andy Home of Reuters takes an indepth look at what’s going on with the red metal.

Others (for subscribers)

Number Cruncher: These 10 financially healthy TSX stocks offer downside protection in rising markets

Wednesday’s Insider Report: Billionaire businessman invests $43 million in this large-cap dividend stock

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Tuesday’s Insider Report: This CEO is buying on the dip as precious metals stocks slump

Globe Advisor

Why India is poised to lead in post-pandemic growth

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Ask Globe Investor

Question: My wife and I are both 71 and have converted our RRSPs to registered retirement income funds in anticipation of starting to withdraw funds this year. I believe I heard that it is possible to just transfer the appropriate amount of the funds we have into our non-registered account without actually selling anything. The value of the transferred funds at that time is taxable, of course. Please confirm that this is possible.

Answer: Yes. It’s called an in-kind withdrawal. The securities that come out of plan will be taxed on the basis of their market value at the time of withdrawal.

--Gordon Pape

What’s up in the days ahead

David Rosenberg will have some fresh thoughts on how to invest now that the worst of the pandemic appears to be in the rear-view mirror.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff