Economists: Prices could weaken regional growth
Purchasing staff -- Purchasing, 11/8/2004 10:34:00 AM
North American economic growth could weaken in 2005 if oil and commodity prices remain at record-high levels, according to independent economic researchers in the U.S. and Canada. "Oil prices are the wild card for the world economy," says Kip Beckman, principal research associate at the Conference Board of Canada, especially since manufacturers have been hit hard with sharp pricing increases for a host of essential commodities this year.
While government economists predict that the North American economy will generate solid growth of 3.5% next year, private economists say the U.S. economy’s growth rate still is “highly vulnerable” to fluctuations in the prices of energy and raw materials. In fact, the CIBC World Markets economics team of Jeff Rubin, Benjamin Tal and Leslie Preston suggest that even though the North American economy “may well consume key manufacturing ingredients more efficiently than in the past, that doesn't necessarily mean the region consumes any less of them or isn’t subject to the erratic nature of their pricing.” Crude oil has been getting most of media and economist attention, with West Texas Intermediate rising from $33/barrel in January 2003 to $50 these days, an increase of 52%. However, copper cathode, since the start of 2003, has risen 83% to $1.37/lb average in October. Aluminum ingot, in the same time period, has risen 27% to 83¢. The price of zinc, used for alloys and coatings, has risen 19%. Also, the price of hot-rolled steel sheet has nearly tripled in the past 22 months. And, the corrugated packaging used to ship manufactured goods has risen by 29%. The inability of many manufacturers to boost prices for their end products enough to offset rising materials’ costs, already a problem this year, may become exacerbated in 2005 if the U.S. and Canadian government boost interest rates to curb inflation.
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