Will lower pump prices stoke higher holiday spending? Not likely
Are lower gas prices actually helping consumers all that much? Not really, some suggest.
In a research note this week, analysts at European bank Credit Suisse said the roughly 20 per cent drop in gas prices seen in Canada and elsewhere this fall isn’t lining our pockets with newfound cash as much as we think – and expectations for that are getting “carried away.”
That’s because of a variety of reasons, including rising costs on many other expenses, notably on food and energy. Moreover, gas prices aren’t really that much lower than they were a year ago, according to gasbuddy.com, a retail gas price tracking site (see chart below).
On that first point, while the Credit Suisse report is primarily aimed at U.S. consumers, households on both sides of the border have indeed seen their commuting costs decrease since the summer. Yet food costs continue to rise faster than headline inflation, and heating has positively surged.
Food, energy inflation
Natural gas was up 20 per cent last month, according to inflation data from Statistics Canada released last week. Food meanwhile — and meat in particular — is more than a few percentage points higher than a year ago and is comfortably racing ahead of growth in average wages.
“At the margin, lower gas prices help, but what this consumer really needs in our view is better employment trends and wage growth,” Credit Suisse said.
Canadian consumers are also being dealt another blow: a weaker loonie. The currency’s fall in recent months is applying upward pressure on prices for the many, many imported products sold in Canada, experts say, such as clothing and a wide range of household goods.
Not to put too much of a damper on the holiday cheer, other experts suggest falling gas prices should make for a merrier Christmas at the mall.
Economists at TD noted this week the drop in gas prices “leaves more money in consumers’ wallets for holiday spending.”
The lower loonie should also make cross-border shopping less attractive, even with the lower transportation costs to get over the border. That too will help boost what’s spent on gift-giving here at home.
But gas’ drop won’t be leaving as much in consumers’ pockets as many may think. A year-over-year comparison of retail prices in Vancouver, Calgary and Toronto shows gas isn’t that much cheaper right now versus a year ago.
Overall, TD expects retail spending over the November-December time frame to grow 3.6 per cent above what consumers spent last year. That’s a tenth of percentage point below the long-run average, TD said.
Falling gas prices are of course a result of declining oil prices, something that has had an uneven impact on Canadians depending on where they live.
Consumer confidence in Alberta and other heavily oil-reliant regions has been rattled more than other parts of the country TD economists Admir Kolaj and Leslie Preston said. That could result in scaled back spending in those regions.
“Consumers in oil-producing provinces such as Alberta, Saskatchewan and Newfoundland may be more circumspect in their holiday spending,” the TD economists said.
Meanwhile that sense of having more money in their pocket could perhaps convince shoppers in Ontario, Quebec and elsewhere to spend more. “Other provinces would be more likely to see a boost due to lower prices as the pump,” the economists said.
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