The Disinflation Game

Jan. 12, 2015: Where are price rises slowing? Where are they falling outright? Plus, the job-loss gender balance, a Shopify IPO, and investing in Africa


The biggest story in the world today is the continuing fallout from the Paris shootings. But the economic story is focused on growth—or lack of it—as worries about deflation mount around the world, pushing indexes down on Friday and again this morning.

The eurozone is officially experiencing deflation, after last week’s numbers showed a year-on-year decrease in prices of 0.2 per cent, and data from China show wholesale prices falling for nearly three years (even as consumer prices increased). Even in the U.S., where job growth has been very strong, wages are not rising apace (and bond yields remain stubbornly low). In Canada, the latest numbers showed inflation slowing, down to two per cent in November from 2.4 per cent the previous month.

A quick note on oil: Last week, we wondered if oil had hit its floor (although nobody really believed that), or was just feeling the proverbial “dead-cat bounce.” The feline analogy proved to be right. West Texas Intermediate was below $48 again, at US$47.20 this morning, while Brent was at $48.77.

Job growth is up, but what about wages and women’s jobs? Labour reports were released on Friday morning in the U.S. and Canada. First, Canada: The unemployment rate was unchanged last month (6.6 per cent), but there were some interesting patterns, as job losses in part-time work were offset by gains in full-time employment. And a similar thing happened in the gender gap: 24,000 fewer women aged 25 to 54 were employed in December, but their numbers were almost exactly replaced by men. 23,000 more men found jobs last month.

In the U.S., job growth was strong—making 2014 the best year for the country’s labour market since 1999—with more than 250,000 jobs added to the economy in December alone, and almost three million jobs added during the year. Despite the boon, however, hourly wages haven’t followed suit, even dropping in December, alongside a drop in the participation rate (the rate of people either working or looking for work). This gives a more complex picture of the American economic recovery as the Fed contemplates rate hikes, and has caused world markets to stumble from Asia to Toronto. If you’re a chart wonk, have a look at Quartz‘s “live chart” of the jobs report. 

The Keystone debate. After six years, the debate over TransCanada’s pipeline continues. On Friday, Nebraska’s Supreme Court said the pipeline’s route is legal, against the complaints of local landowners. On the same day, the House of Representatives passed the bill supporting the project again. Today will see a test vote in the U.S. Senate. While Republicans have backed the bill, U.S. President Barack Obama has indicated he will veto the bill if it gets to his desk.

Will Shopify go public? The e-commerce company is staying mum, but reports from Bloomberg and the Wall Street Journal on Saturday both quote unnamed sources saying the company, which is known for creating custom online stores, has been shopping around for banks to lead an offering. The WSJ says the dual U.S.-Canadian IPO could raise US$100 million and value the company at US$1 billion. Bloomberg also quoted sources who say this is the year a slate of Canadian tech companies may go public, including the social network platform Hootsuite.

More default fears for Ukraine and Venezuela. Last week, we highlighted two struggling economies: the petro-problems of Venezuela, which is experiencing major food shortages, and the debt issues of beleaguered Ukraine. The rating agency Moody’s says the eastern European country’s battered finances mean it’s highly likely to default, despite aid from the IMF and the EU, and even if Russia doesn’t ask for early repayment of a $3-billion loan. (On Friday, the Fitch rating agency brought Russia’s rating down to one level above junk.) The Venezuelan president, Nicolás Maduro, spent the weekend trying to do something about the price of oil. Despite being an OPEC member, the country is desperate for the price to increase—oil makes up almost all of their exports—and food shortages, likely caused by currency controls, have increased dramatically. Iran isn’t happy about the drop, either.

Should you invest in African markets? The people behind a record-breaking fund say yes, after the London-based firm raised the first $1-billion private equity fund focused exclusively on Africa. As part of a global slowdown, many African economies—especially oil-focused countries such as Nigeria—are likely to suffer, and ebola continues to ravage several western African countries. But while investment in Africa is tiny, even compared to Latin America, the IMF says many African countries are much wealthier than they appear. Many countries, including Kenya, have been establishing new base levels for calculating their GDP, which can be notoriously difficult and expensive to calculate without strong infrastructure and reporting. As a result, estimates of GDP for several countries have grown significantly, and eurobonds from the continent in 2014 are expected to have another record-setting year.

Need to know:
TSX: 14,384.92 (-72.80 points, 0.5 per cent)
oil (WTI): $47.20
loonie: 84.27 cents (-0.22 cents)



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