Food costs are going to rise.
We transport the majority of our food over vast distances, consuming fossil fuels. As the price of the fuel increases, so will the price of the food.
Or, we try to replace the fossil fuels with bio fuels and put pressure on the food supply, raising prices.
As for gasoline prices, I love watching the news. Gas went up to $1.29 here yesterday, so of course there is the at-the-pump interviews. Typically showing some SUV or peecup driver facing some >$100 bill.
Who caused these high prices? Oil companies? Governments? Nope. We did. On my street of 25 houses, there are perhaps four cars capable of less than 10L/100km in city driving. The majority of the vehicles are not capable of less than 15L/100km in city driving.
What about stagflation? The 78-83 oil shocks caused it, and adjusting for inflation, we're higher then then. Well, there are some differences. Back in 1980, no one was willing to bite the bullet for higher energy bills. Employess demanded higher wages to compensate and the rising wages coupled with rising prices sent the BoC insane and interest rates went through the roof. In 2008, wages have been increasing slowly, with consumers shrugging their shoulders are just spending a greater percentage of their income on gasoline.
However, prices will rise thanks to the massive cost input that oil is. The real worry is that even if workers accept stagnant wages, the combination of inflation and recession will lead us into 1980 stagflation once again, and if the BoC reacts according to policy, we could see some seriously high interest rates.
However, the Fed in the US has tried to preserve consumer spending ahead of controlling inflation by cutting rates. The Repubs are doing everything in their power to keep the economy afloat enough to stand a chance in the election.
There is good and bad to that. Massive debt loads by consumers have left the economy incredibly sensitive to interest rates, so the Fed knows that the only way to keep people spending is to keep rates low. BUT, there is the problem that people are spending money they don't have, and might never have. Subprime crisis Part II?
Canada is far from immune. We don't have the mortgage crisis, but we have massive consumer debts too.
Hold your breath, it's going to be a wild ride...
