Canadian Manufacturing

Gas prices making inflation worse for Canadians, hurting consumer sentiment

Higher gas prices also have a greater impact on shipping costs and the final price of goods in Canada compared with more densely populated countries.

May 9, 2022   by Canadian Press

Gas prices in Canada are continuing to smash records, setting the stage for potentially lasting consequences on everything from the cost of goods to consumer behaviour.

The price of a litre of gasoline jumped to an eye-watering $2.22 cents per litre in Vancouver on May 9 as prices at pumps across the country trended up to start the week.

Rising gas prices are compounding the economic toll of inflation on Canadians, experts say.

This is because higher fuel prices have a knock-on effect throughout the economy, pushing up prices for other goods and hurting consumer sentiment, they say.

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“Higher gas prices have a cascading effect on all sectors of the economy,” said Sohaib Shahid, economic innovation director at the Conference Board of Canada.

“When gas prices go up, prices for all kinds of goods go up because the things we buy in our everyday lives need to be produced and shipped, and that requires energy consumption.”

The result is a kind of inflationary domino effect, with climbing gas prices raising shipping costs and higher shipping costs hiking the price of goods.

Still, some point to high gas prices in Europe — long much higher than in North America — and suggest prices here are simply finally catching up.

Others say 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, making escalating gas prices much less tenable.

“We basically drive more,” said Opher Baron, operations management professor at the University of Toronto’s Rotman School of Management.

“Our public transportation infrastructure is lagging and that’s part of the reason people are so attached to their cars.”

Higher gas prices also have a greater impact on shipping costs and the final price of goods in Canada compared with more densely populated countries, he said.

“The entire transportation network here is over larger distances relatively and therefore a bigger part of every item we buy in retail stores is related to shipping costs and to the cost of gas,” Baron said.

Meanwhile, some argue higher prices at the pump are a good way to spur investment in green energy and electric vehicles.

Record gas prices could indeed help spur the energy transition, boost investment in competing clean technologies like hydrogen and encourage electric vehicle adoption, Shahid said.

Yet those hardest hit by high gas prices are low-income Canadians, who tend to spend a larger portion of their income on transportation, he said.

Canada’s inflation rate hit 6.7 per cent in March, the fastest annual increase in more than three decades, Statistics Canada said in April.


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