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Today's spike in gasoline prices won't help 'flagging' consumer confidence

These are stories Report on Business is following Wednesday, Sept. 12, 2012.

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Pump prices surge
Gasoline prices are surging across Canada, diverting precious pennies from household budgets.

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In Montreal, according to The Canadian Press, pump prices shot up by about 13 cents to just shy of $1.53 a litre. Prices also climbed by more than 3 cents in parts of Ontario, where, in Toronto, for example, regular gas is now just shy of $1.37.

That sparked long lineups at some gas stations in the city.

"This is not going to help flagging consumer confidence," said deputy chief economist Douglas Porter of BMO Nesbitt Burns.

We're not suggesting here that it's time to push the panic button, but price hikes are coming at a particularly bad time. A sustained increase would mean an even bigger burden for Canadian consumers who are already struggling to cut their debt loads.

"Let's just say that aside from October 2008, all of the largest monthly declines in Canadian consumer confidence in the past decade have been associated with spikes in gasoline prices - not rises in unemployment, stock market declines, or other negative news," Mr. Porter said.

"Consumers, of course, care first and foremost about things that affect them directly, and you don't get much more direct or high-profile as gas prices."

It's a particularly tough time for Canadian consumers.

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Not only is unemployment high, at 7.3 per cent, but policy makers have been begging households to cut their record high debt burdens.

Evidence suggests Canadians are getting the message, but it's a tough road.

Household credit still swelled by $7.4-billion in July, according to Royal Bank of Canada. That's 5.7 per cent above the level of a year earlier, said economist David Onyett-Jeffries, a slower pace than previously.

Court backs bailout
Germany's constitutional court is playing its part in easing the euro zone's debt crisis.

The court today backed the 17-member monetary union's bailout fund, known as the European Stability Mechanism or ESM, though it set restrictions on Germany's liability, The Globe and Mail's Eric Reguly reports.

"The court ruled that the €190-billion German contribution can only be raised with legislative approval - in other words, liabilities are not unlimited," said Robert Kavcic of BMO Nesbitt Burns. "Over all, it appears that the conditions are somewhat softer than feared, and the market response has therefore been positive."

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Markets had been watching closely, and the decision buoyed the hopes of investors, who were already upbeat after European Central Bank chief Mario Draghi's announcement last week of a bond-buying scheme that would help drive down the borrowing costs of stressed governments.

"With the Germans now seemingly fully committed to the ESM, and the Draghi plan in force, hopes are high for an easing of the euro zone crisis," said market analyst Chris Beauchamp of IG Index in London.

"Questions linger over whether Spain will kick up a fuss about bailout conditions, but the picture looks better than it has for some time."

The European Commission also today unveiled its proposals for a banking union, with central oversight by the ECB.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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