Over a barrel? Canada and the rising cost of energy
Statistics Canada released a new report on August 14th detailing the continued growth of gasoline sales in Canada since 2002. You can read the summary, or the full version.
I’ve read the full report, and here were the main points that stood out:
1) Canadians have been partly shielded from higher gasoline price increases due to the strengthening Canadian dollar
2) Canadians have enjoyed a 35% increase in disposable income since 2002
3) New vehicle prices have actually decreased
While gasoline prices have risen significantly, the increase would have been almost twice as much without the rise in the Canadian dollar. Because of the integrated North American market for gasoline, the rising exchange rate has dampened the price increase for consumers in Canada. Gas prices in Canada have risen 84% from 2002 through May 2008, versus a 176% hike in the US. This gap is mostly explained by the 57% rise in the value of the loonie against the US dollar. The slower rate of increase in gasoline prices in Canada relative to the US represents a saving to consumers of nearly $30 billion, the equivalent of 3.2% of personal disposable income.
Not surprisingly, the combination of higher prices and increased gasoline consumption has raised the portion of expenditures consumers allocate to gasoline. Last year, Canadians spent 3.6% of their disposable income on gasoline, up from 2.9% in 2002. In the first quarter of 2008, this rose again to 3.8%, compared with its previous record high of 3.3% in 1982 and 1983. Still, the increase was more gradual than the abrupt hike in 1980, allowing households time to adjust.
The increase in spending on gasoline since 2002 was less than the drop in income devoted to purchasing autos, from 6.2% to 5.3%. The drop for autos entirely reflects lower prices, as Canadians increased vehicle purchases over the last six years. As well, nominal disposable incomes have grown by 35% from 2002 through the first quarter of 2008, mostly as rising employment has tightened the labour market.
The report is correct to conclude that Canadians have been slow to change their fuelish ways, but it does point to reduced sales of larger vehicles in early 2008 as a sign that change has started.
With fuel hitting $1.50 a litre in July across the country, people have noticed. Yes, oil prices have retreated, but so has the Canadian dollar. If the dollar continues to fall, Canadians shouldn’t expect much of a drop from the current average of $1.35. You can learn more about historical fuel prices in Canada by visiting here. If you are interested in US data, visit here.
The future of energy prices is certain - prices will continue to rise. Carbon taxes and offsetting, supply issues, demand - all of these will have an effect. The average Canadian is going to be impacted, but can reduce the impact by adopting fuel efficient driving techniques and/or purchasing a more fuel efficient vehicle. Still, this isn’t the whole picture. We need to rethink the way we live and commute, as perpetual growth is not sustainable. We will need to learn how to live with retreating economic growth, by adjusting our expectations, or better yet, by adopting different values.


