Emily Kaiser, Reuters
May 26, 2008 04:30 AM
Move over credit crisis, spiralling global oil prices have become the West’s biggest economic worry
WASHINGTON—Somewhere between the implosion of Wall Street firm Bear Stearns in March and today’s $130-plus oil, inflation supplanted the credit crunch as North America’s biggest economic worry.
Just a few weeks ago, investors were paralyzed by fears that Bear Stearns could be the first of many financial firms to fall. But the relative calm — and rise in the case of Canada and Mexico — that has settled over markets since then encouraged buyers to tiptoe back into stocks.
Now, the mood is wary once again as oil has surged more than 30 per cent so far this year and economists warn that it is cutting into consumer spending and eroding corporate profits. U.S. stock markets, which had been taking cues from the latest bank rumour, now slide on each new high for crude.
“For the first time in our memory, inflation, not growth, is the primary macro driver at the global level,” Merrill Lynch economists wrote in a note to clients.
“The inflation shock has already happened. What matters now is how persistent it is, and how markets and policy-makers react. At a global level, this begs for an accident that will awaken markets and policy makers to the risks.”