Gas prices in Canada are breaking records, setting the stage for potentially lasting consequences on everything from freight costs to consumer behavior.
The price of a liter of gasoline rose to 2.22 cents a liter in Vancouver on Monday, as prices at pumps across the country rose at the start of the week.
Experts say rising gas prices are exacerbating inflation’s economic toll on Canadians.
This is because higher fuel prices have an impact on the entire economy, driving up prices of other goods and hurting consumer sentiment, he says.
“High gas prices have a huge impact on all sectors of the economy,” said Sohaib Shahid, director of economic innovation at Canada’s Conference Board.
“When gas prices rise, so do the prices of all kinds of goods because the things we buy in our everyday lives are produced and shipped, and that requires the consumption of energy.”
The result is a sort of inflationary domino effect, in which rising gas prices increase shipping costs and higher shipping costs increase the price of goods.
Still, some point to higher gas prices in Europe – significantly higher than in North America – and suggest that prices here are finally catching up.
Others say that Canada’s vast geography and less reliable rail and public transit options increase the country’s reliance on passenger vehicles for transportation and trucks for shipping, leaving little to no increase in gas prices.
“We basically drive more,” said Ofer Baron, an operations management professor at the University of Toronto’s Rotman School of Management.
“Our public transport infrastructure is lagging behind and that’s why people are so attached to their cars.”
Higher gas prices in Canada also have a greater impact on shipping costs and the final cost of goods than in more densely populated countries.
“The entire transportation network here is relatively long distances and so a large part of what we buy in retail stores is related to shipping costs and gas costs,” Baron said.
Meanwhile, some argue that higher prices at the pump are a good way to increase investment in green energy and electric vehicles.
Shahid said record gas prices could actually help fuel the energy transition, spur investment in competitive clean technologies like hydrogen, and encourage electric vehicle adoption.
Yet the hardest-hit by high gas prices are low-income Canadians, who spend a substantial portion of their income on transportation, he said.
Shahid said he is also less likely to be able to buy an electric vehicle to help offset the high gas prices.
“Those who can afford (electrical vehicles) are also the least affected by higher gas prices,” he said.
In addition, higher prices can actually boost investment in oil and gas.
“While prices have historically risen, energy companies have produced more oil and more gas to capitalize on higher prices,” Shahid said.
Canada’s inflation rate hit 6.7 percent in March, the fastest annual increase in more than three decades, Statistics Canada said in April.
Russia’s attack on Ukraine has mainly been attributed to driving up oil prices. Several countries, including Canada, have banned imports of Russian oil, creating a supply crunch.
As China emerges from the COVID-19 lockdown and oil demand continues to rise around the world as pandemic restrictions are eased, prices could worsen, Shahid said.
“I don’t think higher gas prices will be resolved quickly,” he said. “I don’t see any major factor driving down prices.”
A new survey suggests rising gas prices could put road trips across Canada on hold this summer.
Two-thirds of Canadian drivers who responded to a lager poll in April said they would stay closer to home this summer.
The survey by the Tire and Rubber Association of Canada found that 66 percent of drivers said fuel prices would force them to cancel or limit road trips this summer. That number rose to 75 percent among younger drivers aged 18 to 24.
“When prices go up, people want to keep their money with them,” Shahid said. “When they restrict spending, it has an impact on production and economic growth, which also results in weaker GDP growth.”
This report by The Canadian Press was first published on May 9, 2022.