Economy needs a drop in energy prices: report
Soaring oil prices have created a boom in several parts of the country, but a Bank of Montreal economist said Wednesday that high prices for energy have become too much of a good thing for Canada's economy.
"There is a strong case to be made that the surge in oil and gas prices crossed the tipping point this spring from providing some economic ballast for the domestic economy to acting as a heavy anchor," said BMO Capital Markets deputy chief economist Douglas Porter.
"Some sustained moderation in oil and gas prices would be the most positive near-term development possible for the greater good of the Canadian economy at this stage," he added.
The price of a barrel of light, sweet crude for August delivery rose one cent US to $136.05 in trading on the New York Mercantile Exchange Wednesday. The price has slipped from a record $145.85 a barrel on July 3, but is still far above the mid-$70s range of a year ago.
Heating bills to rise
Porter said consumers' household heating bills are being set up for a wallop this winter. Natural gas prices have been on the rise, and he expects electricity prices in many provinces to climb as well.
Canadian consumer spending on energy — as a percentage of disposable income — likely hit a record high of seven per cent in the second quarter of this year, Porter said, adding that he sees that going higher in the future.
Rising prices for energy are causing inflationary pressures. The consumer price index for June could reach three per cent and top that mark in the next few months. A move above three per cent would push inflation beyond the upper link of the Bank of Canada's target range of one to three per cent.
Porter said a retreat in energy prices would likely be painful for the TSX and Canada's trade surplus, but it would "remove a tremendous burden from the U.S. and global economy and would take some of the pressure off simmering inflation pressures."
0 comments:
Post a Comment