A question experts have been asking themselves in recent months is what consumers will do with their gas money.
Oil’s sharp drop quite expectedly led to an initial fall in gas prices, which led to all kinds of predictions about the “dividend” this would create for consumers to spend elsewhere.
The problem is we’re not. Instead, some have suggested Canadians are saving more or using the funds to help chip away bulging debt loads. Yet it looks increasingly as though we’re plowing the excess cash largely into what we were before oil’s crash: gas.
While North American oil prices have fallen about 50 per cent compared to levels last summer, retail gas prices are fast approaching levels consumers were paying last summer before crude’s slide. Pump prices now stand only about 10 per cent lower than they were a year ago (see charts below, or here and here).
Thanks Big Oil
One reason is the cratering loonie, which touched a fresh post-recession low this week at a shade under 77 cents US. The low Canadian dollar is making the cost of commodities that are priced in U.S. dollars, such as gasoline, more expensive domestically than they would have been if the loonie was worth more.
But big oil firms that own entire supply chains, from oil extraction to refining to distribution through their own network of retail stations, are also keeping retail prices elevated, experts say.
Big producers that own stations such as Suncor and Imperial Oil Ltd. are hoping to offset the financial hit they’re taking from low oil prices by lifting them at the pump.
“The cost of driving for Canadian households has quietly retraced about two-thirds of last year’s plunge,” Sal Guatieri, senior economist at BMO Nesbitt Burns, said Tuesday.
A third factor is a reflection of basic economics. Experts also point out that July is the busiest driving month of the year, and prices are rising to meet demand.
Consumer hit
Still, there’s a tangible let-down for both consumers and the economy.
The higher-than-expected pump prices are a big reason why the amount of stuff consumers are purchasing has “gone virtually nowhere since last fall and the economy has headed south,” Guatieri said.
“The 30 cent/litre climb in gas prices since January drains consumer spending power by just over 1 per cent.”
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