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$100 oil won't derail the US economy – CNN

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New York (CNN Business)Russia’s invasion of Ukraine has sent oil futures above $100 a barrel for the first time since 2014 and will probably bring $4-a-gallon gasoline to much of the United States. But it won’t be a major drag on US economic growth.

Economists project that at most the nation’s gross domestic product, the broadest measure of its economic activity, will have a few tenths of a percentage point shaved off its growth rate. With the economy growing very strong — GDP had its best growth since 1984 last year — America is expected to weather those higher prices just fine, even if drivers are grumbling.
The positives and negatives for the US economy from an oil price hike come close to balancing each other out, noted Paul Ashworth, chief North American economist for Capital Economics.
“While we know it will definitely mean a reduction for the real spending by households [on other goods], there will be a positive impact on domestic oil production,” Ashworth said. But he said that the run up in oil prices the last two years has done less than might be expected to raise oil production, investment spending and hiring by US oil companies. That’s partly because investors and banks have been reluctant to pour more money into fossil fuel companies.
“We’ve already had oil go from $40 a barrel to $90 with a lackluster response by shale producers,” Ashworth said. “So I expect the positive impact on production will be less than the negative on other household spending.
Goldman Sachs also expects only a modest impact on economic growth from the oil price spike — equal to about one-tenth of a percentage point of growth for every $10 rise in the price of an oil barrel.
The spike and the fighting in Ukraine could kill the talk of the Federal Reserve raising interest rates by a half percentage point at its next meeting, rather than the traditional quarter-percentage-point rise.
The Fed’s Geopolitical Risk Index is at the highest point since the Iraq War in 2003. If the Fed is more cautious on raising rates, that could cushion the blow that higher oil and gas prices might have on growth.
“We suspect that some participants will see it [geopolitical risk caused by the war] as a compelling reason not to hike by 50 basis points in March,” said a note from Goldman Sachs’ economists on Wednesday.
At the same time, the Goldman analysts noted that the the hit to US GDP growth could be somewhat larger if geopolitical risk increases uncertainty for businesses.

A history lesson

This expected muted impact on the American economy hasn’t always been the case.
The oil spike that followed the Arab Oil Embargo in 1973 was a major cause of the recession of 1973-74. And Iraq’s invasion of Kuwait in August of 1990 nearly doubled the price of oil over the next two months to $40.42 a barrel, or about $85 in today’s dollars. It was a key factor in the the 1990-1991 recession. But the United States depended far more on imported oil then than it does today.
Beyond the question of where the oil came from in those days, the country was far more dependent on oil and other sources of energy overall. As the US economy has shifted from a manufacturing economy to a service economy, the amount of energy consumed per dollar of GDP is about 60% from where it was in 1975, and down about 45% from 1990, even controlling for inflation since that time.
When oil hit $100 for the first time in February 2008, it didn’t cause a recession, partly because the American economy was already well into the Great Recession, a severe downturn brought about by the bursting of the US housing bubble a few years before and the shockwaves that went through the US and global financial system.
The next time oil hit $100 a barrel was in 2011, when it briefly went above that mark. It did so again in early 2012. But it didn’t cause a recession.
The most recent bout of $100 oil before this one started in July 2013, and oil prices stayed near or above that mark for a bit more than a year. But the nation avoided a recession then as well. GDP did turn negative in the first quarter of 2014, but that was attributed to many other factors, including particularly bad winter weather that kept many consumers at home. And the economy bounced back strong in the second quarter of 2014, even though oil prices didn’t fall below $100 for good until the end of July.

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

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Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

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OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.

The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.

Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.

Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.

The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.

The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.

“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.

The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.

The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.

A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.

Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.

Its key lending rate currently stands at 4.25 per cent.

CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.

The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.

This report by The Canadian Press was first published Sept. 17, 2024.

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