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Food prices projected to rise by 5% in Canada this year

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Food prices forecast to jump Canada has yet to feel the sting of surging food costs but that's about to change, a new forecast suggests.

Prices have been climbing around the world, helping to fuel unrest in regions such as North Africa, The Globe and Mail's Paul Waldie reports today. But, so far, food inflation has been tame in Canada.

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Capital Economics, however, says in a research report that soaring commodity prices will catch up and boost food inflation in Canada to about 5 per cent later this year, from its current level just shy of 2 per cent. That would add 0.8 percentage points to the overall rise in the consumer price index, said David Madani, Canada economist at Capital Economics in Toronto.

"However, we think this relative price shock will be temporary, as commodity prices will fall back," he said. "Despite the pick-up in pipeline inflation, underlying inflation is likely to be contained by disinflationary pressures from excess industrial capacity, high unemployment, moderating wage wage growth, and slower growth in broad money supply."

As Globe and Mail writer Tavia Grant reported last week, food prices in Canada climbed 1.7 per cent in December from a year earlier, a faster pace than November's 1.5 per cent. But in regions such as India, for example, food inflation is running at 16 per cent.

Egypt's economy grinds to halt Egypt's economy is crippled today as hundreds of thousands of people flood Liberation Square amid mounting protests.

Many multinationals have suspended operations, banking has slowed to a crawl, and tourism is suffering.

"Tourists are flying away; the capital is going to fly away as well," Gehan Saleh, an economist at the Arab Academy for Science and Technology, told The New York Times.

It's not just Egypt, of course. Markets also fear the unrest will spread to other countries, and possibly disrupt oil supplies through the Suez Canal, which has not happened yet.

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"Concerns that turmoil in Egypt could expand to impact oil production or transportation have pushed prices through the roof," said Carl Weinberg, chief economist at High Frequency Economics, noting that Brent crude has topped $100 (U.S.) a barrel.

"Remember that the Suez Canal is an important conduit for all kinds of trade, and that important oil pipelines run through Egypt directly," he said. "If Egypt's turmoil spills over into the Gulf states, oil production may be crimped at the source."

Mr. Weinberg also cited some other little-known data: Banks in the euro zone are exposed to Egyptian borrowers to the tune of almost $38-billion, largely French and Italian institutions, while British banks account for almost $11-billion and U.S. banks about $5-billion.

"If banks in Egypt remain closed for more than 120 days, payments on these debts will not be able to be effected, for the most part."

Global manufacturing speeds up There's a double-edged sword in the post-recession era: Economies are speeding up, notably for manufacturing, but so are inflationary pressures.

Purchasing managers' indexes from Europe and Asia today show factories continue to hum as industries bounce back, but input costs are also surging. If that filters through to the consumer level, as it has in some countries, monetary authorities will be under pressure to hike interest rates.

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In the United States, the Institute for Supply Management reported today that the manufacturing sector also expanded again in January, this time at its fastest rate in about seven years.

Almost one in 10 without work in Europe Unemployment continues to be stubbornly high, though dipping in some European countries.

The jobless level in the European Union held fast at 9.6 per cent in December, the Eurostat statistics agency said today, though that overall rate masks the huge differences among its 27 member nations.

The Netherlands, Luxembourg and Austria posted the lowest unemployment rates, at 4.3 per cent, 4.9 per cent and 5 per cent, respectively, while the highest were registed in Spain, at 20.2 per cent, and Lithuania and Latvia, both at 18.3 per cent.

Jobless levels fell in eight EU countries from a year earlier - notably, in Germany - but climbed in 18, and held steady in Britain.

One wonders how long it will be before they begin talking about a lost generation in Europe, where the jobless rate for youths is now at 21 per cent.

BP rebounds in quarter Here's some nifty math: BP PLC today said its costs for the cost of the Gulf of Mexico oil were almost $41-billion (U.S.) last year, it posted a fourth-quarter profit of $5.6-billion and an annual loss of $3.7-billion, and it resumed its dividend, at a cost of about $1.25-billion.

The energy giant is also selling two U.S. refineries, and said it remains on track for divestments this year of up to $30-billion.

"2011 will be a year of recovery and consolidation as we implement the changes we have identified to reduce operational risk and meet our commitments arising from the spill," said chief executive officer Bob Dudley. "But it will also be a year in which we have the opportunity to reset the company, adjusting the shape of our business, and focus on growing value for shareholders."

There is life after death Credit rating agencies will be taking a fresh look at Iceland - remember, before there was Greece there was Iceland? - and could boost the tiny nation's ratings, according to Bloomberg News.

Such a move follows a deal that ended a two-year battle between Iceland and Britain and the Netherlands over the collapse of a bank at the height of the financial crisis. Under the deal, which Iceland's president still must approve, his government would pay about $5-billion (U.S.) to cover depositor claims.

"Of course, reaching an agreement and indeed one that is more beneficial to Iceland than the previous one is a factor that is positive for the rating," analyst Kathrin Muehlbronner of Moody's Investors Service told Bloomberg. A senior director at Fitch Ratings also told the news agency his company will publish a revised rating in the next few months.

Most of the money is expected to come from selling assets of Landsbanki, but the remainder will still be well below that of an earlier deal that voters, and the president, rejected.

Boyd Erman's Morning Meeting Citigroup Inc. is adding more stock to banker bonuses, joining a wider trend by banks to reduce the cash component and pay more in stock, Streetwise columnist Boyd Erman reports today.

In Personal Finance today

A rental trend is replacing retail as young Canadians increasingly question the financial and environmental impacts of their purchases.

These online calculators will help you figure out how much you'll need to sock away.

Forget flipping houses - a new ilk of entrepreneur is taking furnishings found at estate sales, auction houses and Goodwill, and flipping them for profit.

From today's Report on Business

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