# How will US inflation hurt us in Canada?



## v_tofu (Apr 16, 2009)

Hi all, 

Just watching the news about the government shutdown, QE3, etc, and was wondering how this will effect us up here in the great white north. I know our economies are tied to each other (whether we like it or not), but will we see a negative impact as well?

My short sightedness can only see more trips to the States for weekend shopping as the US dollar index continues to decline 

So thoughts from those with more insight? Will the US experience a type of hyperinflation and will Canada suffer or gain from it?


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## kcowan (Jul 1, 2010)

Yes Canada will experience most of the problems that the US experiences. We will be buffered somewhat by our commodities and our continuing housing bubble. But eventually we will have to pay the piper.


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## dogcom (May 23, 2009)

Out west it will help us as said by the rising commodity prices but at the same time we will all pay more for everything so this will be bad for those on fixed income or those whose wages stay low. The real cost will come when interest rates rise quickly when they try to get things under control again and then we will suffer big time from that. Down the road we will recover when emerging markets and so on bid up our commodities again after the pain has run its course.

The best part will be if interest rates do rise very high and you have cash to take advantage of this. You won't need to buy stocks and can just buy bonds, which will be far easier and just as rewarding without all the risk if things play out right.


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## greeny (Jan 31, 2011)

Good question!


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## v_tofu (Apr 16, 2009)

kcowan said:


> Yes Canada will experience most of the problems that the US experiences. We will be buffered somewhat by our commodities and our continuing housing bubble. But eventually we will have to pay the piper.


Interesting opinion. Thanks!

Why do you think we will have the same problems? I thought our banks were much tighter with thier lending policies in regards to mortgages and what not.


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## kcowan (Jul 1, 2010)

v_tofu said:


> Interesting opinion. Thanks!
> 
> Why do you think we will have the same problems? I thought our banks were much tighter with thier lending policies in regards to mortgages and what not.


Yes the lending has been more cautious so there will be fewer foreclosures. However, we have 5-year mortgages (not 30-year like the US), so everyone will be renewing and the rates will be higher. Many first-time buyers just put 5% down and so will not have much equity when the renewal happens. So they will be squeezed to make their higher payments and other spending will be hit. Plus there will be job losses as our exports to the US decline.

It will not be dramatic but it will be an economic hit.


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## sprocket1200 (Aug 21, 2009)

kcowan said:


> Yes the lending has been more cautious so there will be fewer foreclosures. However, we have 5-year mortgages (not 30-year like the US), so everyone will be renewing and the rates will be higher. Many first-time buyers just put 5% down and so will not have much equity when the renewal happens. So they will be squeezed to make their higher payments and other spending will be hit. Plus there will be job losses as our exports to the US decline.
> 
> It will not be dramatic but it will be an economic hit.


I agree with cowan. plus it doesn't take much for some fear to develop. so many people are running around saying how great the Canadian economy, but it is all relative. with our expectations on housing increases so out of line, once reality hits, dogcoms cash thought will play out for some of us very nicely indeed...


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## LondonHomes (Dec 29, 2010)

US inflation significantly above the rest of the world will result in an ongoing decline in the value of the US dollars. This means that the cost of buying products from the US should remain the same or get cheaper. Which is the good news.

The bad news is that it will be more expensive to for the US to buy products from Canada. Which since they are our biggest customer is vey bad news. We will probably see a decline in sales and the closing of some businesses that primarily service the US market. The opporunity here is that the decline should be slow enough for Canadian business to shift from exporting to the US to other markets around the world.


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## kcowan (Jul 1, 2010)

The other thing is that our bank rate should be increased, but an increase will trigger a stronger dollar and who needs a stonger dollar?


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## I'm Howard (Oct 13, 2010)

We just got back from six months South, after getting over the shock of Gas prices, we need to buy very little in Canada, maxed out in US.

No more drinking wine, that is good, from $3.50 to $14..00, too much of a leap.

$400 bed set here, cost us less than $120 in the US after discounts.

Vet here wanted $400/$800 to do our Yorkies mouth, $140 in the US, with a very competent Vet who actually phoned to ask how the Dog was doing.

My prediction, $0.92 will be the bottom.


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## v_tofu (Apr 16, 2009)

LondonHomes said:


> US inflation significantly above the rest of the world will result in an ongoing decline in the value of the US dollars. This means that the cost of buying products from the US should remain the same or get cheaper. Which is the good news.
> 
> The bad news is that it will be more expensive to for the US to buy products from Canada. Which since they are our biggest customer is vey bad news. We will probably see a decline in sales and the closing of some businesses that primarily service the US market. The opporunity here is that the decline should be slow enough for Canadian business to shift from exporting to the US to other markets around the world.


But at the same time, would we see increase purchasing from other nations? i.e China? I was told that Canada is fairly rich in commodities, so would it be ok to save that we are fairly safe from a very high inflation, given that other growing nations will require our goods?


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## I'm Howard (Oct 13, 2010)

China is sourcing most of its' resource needs from Australia and from Russia.

China has vast untapped resources which they are just starting to develop.

Long Range, the Chinese do not need our markets, once they are established, they have enough people in China to support their manafacturing.


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## FrankDrakman (Apr 17, 2011)

*Why China sources from Oz, etc.*

Look at the bottlenecks we have getting anything to the West Coast from Alberta, let alone Central Canada. One highway. Two railway lines that are necessarily restricted in speed because of the winding tracks through the Rockies. A host of obstructionist Greens/Libs/nutbars who don't want a pipeline from Alberta to the coast because of a few caribou (who seem to co-exist quite peaceably with other pipelines, in fact) and the spectre of an oil spill off BC's coast. Gee, do you think it's easier to ship to the US rather than China?

Of course China sources from Oz when it can; it's CLOSER. But, with the "Lucky Country" simultaneously suffering from a massive drought, and massive floods (seems strange, don't it?, but there you go..) we have a chance to replace some of the grain and other materials on a temporary basis, which gives us a chance to get some of that market permanently. 

I just think we need to deal with China on a "tit-for-tat" basis. No Canadian company can just go set up shop in China - it has to be with a government approved partner who holds the majority share. We should have similar rules for Chinese investment. Sure, let them buy a share of Potash, if they want, but they can't have majority control, and we sure as hell shouldn't let them buy anything lock, stock, and barrel. When they open up their capital and business markets to us, we'll open ours to them. Until then, they can pound sand. In the long run, they need our food, oil, and lumber a lot more than we need cheap plastic toys.


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## LondonHomes (Dec 29, 2010)

I'm Howard said:


> China is sourcing most of its' resource needs from Australia and from Russia.
> 
> China has vast untapped resources which they are just starting to develop.
> 
> Long Range, the Chinese do not need our markets, once they are established, they have enough people in China to support their manafacturing.


In order to support their manufacturing they don't just neeed people, but people with money to buy things. This would mean that wages would need to rise and they would in turn lose their cheap manufacturing base.

The manufacturing base would then move on to another low cost labour market.


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## andrewf (Mar 1, 2010)

Howard, I have a hard time believing those are apples-to-apples comparisons. Things, on average, are not 60-70% cheaper in the US.


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## I'm Howard (Oct 13, 2010)

andrew, depends upon the item, the store, and the sale.

Many stores routinely discount certain items up to 70%, they then have days where you get a special discount for being a Senior, they will then offer a further 15% discount if you open a credit card with them and use it on that purchase, and some stores then give you a further credit on your next purchase, provided it is within a week.

Macy's will give you a special discount card, but you have to ask, of 15% if you can prove you are a foreign visitor.

I paid $140 for Nike Air Shoes at sporting life, plus 13%, HST, same shoes $40 U.S plus 7% Sales Tax.

Glen Livet, $21, 1.75 L Johny Walker Red $21, plus 7% sales tax.

Friends just paid $75k for a condo in Florida that was listed at $250k originally, Canadians are buying properties in Florida and Arizona, the asking price and selling prices are world's apart.

China has more millionaires than people in Canada, wages are rising, Inflation is a problem, my source is my Son, 14 years resident, Mandarin fluent, Political Science Grad. 

China has a long term vision, their Armed Forces now eclipse the U.S, if they want Taiwan, they will take it, the U.S is no longer a threat.

China now has $3 Trillion $'s of U.S Treasuries, they must keep the greenback afloat or else risk severe losses.


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## v_tofu (Apr 16, 2009)

Just saw this article today.

Looks like they keep the rating, but outlook turned to negative.

Is this the beginning?

http://www.bloomberg.com/news/2011-...-puts-negative-outlook-on-u-s-aaa-rating.html


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## andrewf (Mar 1, 2010)

It's patently false that China's military has surpassed that of the US. They have more bodies, maybe, but they would lose a head-to-head fight.

A war over Taiwan would cost both sides so much that it wouldn't be worth it. China is trying the cultural and economic imperialism route, instead.


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## I'm Howard (Oct 13, 2010)

andrew, you are out of date, China has surpassed the U.S in Military Spending and now has far superior numbers in all areas, including Ships and Man Power.

China will reclaim Taiwan one day, the U.S will be powerless to react.

Taiwan Was and Is part of China, economically is provides a service to China, when they want it back, they will reclaim it, and the U.S will have to watch.

My source, The Economist.


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## andrewf (Mar 1, 2010)

Care to cite the article you're referring to? I read the Economist.

In the meantime, here is what Wikipedia has on the subject:

List of countries by military expenditures

Just so I know where you're coming from here, are you a Chinese nationalist? I'm not, so I have no vested interest in this debate.


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## I'm Howard (Oct 13, 2010)

I can't refer to the article, left it in Florida, but $'s spent shown in your referance are meaningless.

How much to build an aircraft carrier in China versus San Diego, I expect the Chinese could build five for evey one the U.S build.?

How many Chinese Soldiers could you get for the salary of one U.S Marine?

Ireland belongs to the Irish, Scotland to the Scottish, Taiwan to China.

Nationalist, No, I won't fight for any countries rag on a stick, a few years with the Military is a good wake up call.

I talk to China two to three times a week, very familiar with what is going on, taught Chinese Martial Arts for a few years, many Chinese friends.


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## ddkay (Nov 20, 2010)

This is the most recent data from SIPRI a Swedish based think tank: http://www.sipri.org/research/armaments/milex/factsheet2010


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## andrewf (Mar 1, 2010)

I rather think that Taiwan belongs to the Taiwanese. I'm happy that they have a thriving and prosperous democracy. I don't see why China needs to conquer them. Soft power is much cheaper, and China would pay an enormous price were they to do that (like all the shiny baubles they bought in the rich world being nationalized like their oil sands investments, for one). China is much cannier than that. I suspect unsophisticated nationalists fall for the more hawkish propaganda, but the leaders are pretty wise to the costs and benefits of such an action. It would set relations between China and the West back decades and result in many doors slammed in their faces.


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## I'm Howard (Oct 13, 2010)

Okinawa(Taiwan) has always belonged to China until Chiang Kai Shek and the defeated Nationalist forces fled there.

Taiwan, as was Hong Kong, is Chinese, they are not Taiwanese but Chinese who live on an Island, just like Newfoundlanders are Canadians who live on an Island.

Time to get back to original thread, sorry to hijack it.


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## andrewf (Mar 1, 2010)

Newfoundland voluntarily joined the Canadian federation in 1949. That's quite different from being conquered.

That Taiwan belongs to China is not obvious, and open to much debate. Risking total war between China and the West hardly seems worth it for anyone involved. So, I think we'll see much the same arrangement continue on for decades to come. Perhaps unification will come, but I expect it will be after China democratizes, and even then I'm skeptical it would make sense for Taiwan to pursue it voluntarily after being independent for nearly a century.

The biggest risk to global security is probably an overconfident China overstepping. It will be a superpower, but it isn't there yet.


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## Karen (Jul 24, 2010)

Howard, isn't Okinawa Japanese? Did you mean Formosa, which I believe was the old name for Taiwan? I have a feeling you just made a typo.


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## v_tofu (Apr 16, 2009)

so.. i think this went a little off course.

Inflation for Canadians this year? I think so.


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## HaroldCrump (Jun 10, 2009)

v_tofu said:


> Inflation for Canadians this year? I think so.


Maybe you've been on a Safari trip into the Amazon rainforest for a year or two, but have you like gone grocery shopping recently?
Or like tried filling some gas in your car?
Or like paid a hydro bill?


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## ddkay (Nov 20, 2010)

Core inflation vs headline inflation, food and energy costs are not measured in the common statistic used - core inflation


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## HaroldCrump (Jun 10, 2009)

ddkay said:


> food and energy costs are not measured in the common statistic used - core inflation


Right, and how very convenient.


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## andrewf (Mar 1, 2010)

It's not a socialist plot, if that's what you're suggesting. Core CPI for monetary policy purposes shouldn't include these highly volatile components, otherwise interest rate policy would be highly erratic and unpredictable. Monetary policy can't even do much to affect these prices, as they are driven by commodities that are priced on international markets.

From the bank of Canada, core CPI is:
"Core CPI: The CPI excluding eight of the most volatile components (fruit, vegetables, gasoline, fuel oil, natural gas, *mortgage interest,* inter-city transportation and tobacco products) as well as the effect of changes in indirect taxes on the remaining components."

I wonder how much the fall in mortgage interest over the past few years has offset the other components that have risen significantly.

If you want to look at total CPI including these excluded components, check out this chart:
http://www.bank-banque-canada.ca/en/cpi.html

Total CPI for Feb 2010-Feb 2011 was about 2.1%. Total CPI for Feb 2008-2011 was 1.7% annualized. For the last ten years it has been 2.06%. Sure, some highly visible items have gotten more expensive, but many things like clothes, furniture, appliances, etc. have seen some pretty serious deflation.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> It's not a socialist plot, if that's what you're suggesting.


No, I wasn't suggesting it's a communist plot 

My point was that we see a lot of questions/threads on here that seem to suggest that people might be making personal finance/investing decisions based on the government's reported CPI numbers.
For instance, a retiree or a soon-to-be retiree considering RRBs.
Or someone looking for bank-guaranteed products like inflation-protected GICs that are pegged to the government's reported core CPI number.

I believe it is misguided to use that number for making such decisions because it is meaningless in the context of personal finance/investing.

Consider the present times : up until yesterday's core CPI annoucement, the number being touted by the central bank was like 1.3% YoY.
However, as an individual household, esp. a retiree, that number is so divorced from reality that it isn't even funny.
Anything that is pegged to that number, such as pension payments, real return bonds, GICs etc. are completely useless from investing and purchasing power protection perspective.
If you are depending on that number to protect your lifestyle and purchasing power, you'll get wiped out.

IOW, the core inflation excludes items that are core to an individual.

That number is calculated and reported by the govt. for its own purposes like monetrary policy and whatnot.
They can choose to include or exclude items to yield whatever number is most desirable for their purposes, and that's fine.
As long as you don't consider that number somehow reflects "inflation" as it pertains to you.


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## v_tofu (Apr 16, 2009)

HaroldCrump said:


> Maybe you've been on a Safari trip into the Amazon rainforest for a year or two, but have you like gone grocery shopping recently?
> Or like tried filling some gas in your car?
> Or like paid a hydro bill?


Actually I've been visiting my adopted family, a pack of wolves in the boreal forest of north eastern Ontario for the last year. Wifi is horrible up here, but they raised me so it makes sense to visit them for awhile from time to time.

Anyways, another article NOT related to China going to war with Taiwan

http://www.dailyfinance.com/2011/04/04/u-s-companies-shrink-packages-as-food-prices-rise/

Another way to hide inflation from the general public?


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## lost in space (Aug 31, 2015)

LondonHomes said:


> US inflation significantly above the rest of the world will result in an ongoing decline in the value of the US dollars. This means that the cost of buying products from the US should remain the same or get cheaper. Which is the good news.


Are you sure about that, just googled it From 2005 to 2011 (ignoring 2008) inflation was running around 3%,pretty steep, than it just falls off a cliff.

I'm in Euro zone and we're basicly in deflation. Even volatile products like food have (outside of seasonal fruit) has barely budged. Even now I can still get a loaf of basic white brown bread for under 80 cents.


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