News Update

Canada and the rising cost of energy

Higher oil prices have sharply raised the cost of filling up at the pump for drivers. However, driving and commuting habits have been slow to change since 2002, partly because the squeeze of higher gasoline bills on household budgets has been partly offset by lower prices for other goods such as autos as well as by higher incomes. Meanwhile, higher prices have lifted energy to Canada's leading export so far in 2008.


The combination of higher prices and increased gasoline consumption has raised the portion of income consumers allocate to gasoline to 3.8% in the first quarter of 2008, from 2.9% in 2002.


The increase in spending on gasoline since 2002 was offset by the drop in the share of 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.


Meanwhile, the overall share of energy in consumer budgets has been steady at 6.7% over the past three years, reflecting lower electricity rates. As well, natural gas prices have risen only 32% by June 2008 compared with 2002, versus a 123% hike in the cost of oil for home heating. A mild winter and cool summer in 2008 has also provided some relief to overall household energy outlays. Energy consumption as a share of disposable income had risen from 5.8% in 2002 to 6.7% in 2005 before levelling off.


Despite the steady escalation of gasoline prices since 2002, Canadian drivers have so far not cut back their consumption. Overall, the retail sales volume of gasoline rose 7.2% from 2002 through 2007. Gasoline consumption rose in every year, with the exception of a 0.4% dip in 2006 when hurricane damage disrupted supplies and briefly sent prices to record levels.

The largest annual increase in gasoline consumption was in 2007, despite the cumulative impact of years of rising prices. Retail sales of gasoline rose 3.9% last year, largely reflecting a 1.9% increase in kilometres driven by all vehicles as well as lower fuel efficiency. A dip in monthly gasoline sales early in 2008 appears partly to reflect poor driving conditions, due to several snow storms, and demand in the first five months of the year remained 0.5% ahead of the same period last year.