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This article predicting inflation to hit 6% by years end in the US has surprisingly has not been that prevalent but Jeffrey Rubin, of CIBC World Markets has really stepped out.  Let me take excerpts from the article and then put my two cents in, for what it’s worth; He predicts that oil will end the year at about $130 (U.S.) a barrel, rising to the $150 range next year, despite a drop in U.S. demand for gasoline.Maybe you think this is ludicrous, or maybe you are scared that it may be true, but remember Rubin was the FIRST guy who predicted that the Canadian dollar would reach parity with the US dollar and that oil would hit $100 a barrel…Don’t bet against him.Higher oil prices will deter international trade, since it makes shipping prohibitively expensive. As a result, high oil prices act like a tariff barrier that will protect U.S. workers from international competition, and give labour a stronger bargaining position, CIBC predicts.This is an interesting phenomenon that I had not heard before but fundamentally makes sense, long term this is good for North American employment numbers, but ultimately will contribute to higher inflation as goods we normally could get cheaper abroad will be more expensive.

As a result, total inflation in the United States, which has already reached a 5 per cent pace, will jump to 6 per cent in the fourth quarter of 2008. And the Fed will respond by raising its benchmark interest rate by 200 basis points (a basis point is one one-hundredth of a basis point).

“History says we will be lucky if they don’t have to do more,” Mr. Rubin said.YIKES!  I have said this before and I will continue to say it, get your consumer debt under control, interest rates are going UP.Want more proof…He notes that the last time the United States had inflation that high was in 1990, and the Fed funds rate was about 7.5 per cent – three times higher than today.More…Bank of Canada Governor Mark Carney “will be eager to follow the Fed” and raise Canada’s key interest rate substantially in order to maintain the central bank’s inflation-fighting credibility, Mr. Rubin said. Most economists, however, predict the Bank of Canada to remain on hold for months to come.Bottom Line, as I said don’t bet against Mark Carney.  Rates are rising…guaranteed. 

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