CALGARY — There’s a famous saying that ‘the cure for high prices is high prices,’ but when it comes to gasoline, that may not necessarily be the case.
Experts are torn on when or even if drivers might see significant “demand destruction” — an economics term for a sustained decline in demand for a product due to excessively high prices — at the pumps.
In theory, reaching an unsustainable price would serve as a tipping point and ultimately cause fuel prices to fall, finally offering drivers some relief. But analysts say we’re not there yet even though gas prices are hovering around all-time highs.
“Canada’s gas prices are at inflation-adjusted records. But I continue to be astonished at the high level of demand we’re seeing,” said Patrick De Haan, head of petroleum analysis for the fuel price tracking service GasBuddy.com.
Gasoline prices have been rising since February, ever since Russia’s invasion of Ukraine sent shock waves through international energy markets.
On Thursday, the national average retail price at the pump in Canada was 208.5 cents per litre, a whopping 76 cents higher than last year’s average of 132.2 cents per litre. The country hit an all-time record of 210.8 cents per litre on June 12, according to GasBuddy.
While Canada doesn’t have good statistics on consumer fuel consumption, De Haan said gasoline purchases are likely comparative to the U.S., where federal data shows gasoline demand has backed off only about five to 10 per cent since prices first began to spike earlier this year.
He said that’s surprisingly low, but likely has everything to do with the lifting of COVID-19 restrictions.
“I would have expected to see more demand destruction (in Canada) at the $2 a litre mark,” De Haan said. “But I think that many Canadians, similar to their American counterparts, are wanting to get out. I also think there are more Canadian companies that are going back to a physical office, and that could be a reason why we’re not seeing things fall off more significantly.”
De Haan added he believes it would take prices climbing as high as $2.25 or $2.50 per litre for unleaded fuel — something that’s unlikely, but could happen if a natural disaster or weather event took out a major North American refinery this summer — to trigger “exponential” levels of demand destruction. Diesel fuel recently peaked at around $2.50 per litre.
Ian Jack, vice-president of public affairs for the Canadian Automobile Association, said any demand destruction that’s taking place at this point is likely minor. He pointed out that for many Canadians, especially in smaller cities and rural areas, driving is the only way to get to work.
“People who drive, by and large, can’t just stop driving,” he said. “So we really see this (price spike) as only affecting demand on the margins.”
While a small number of Canadians may change their summer vacation plans due to high gas prices, Jack said many will be reluctant to if they spent the last two summers staying home because of COVID-19.
“Jet fuel and airfares have gone up as well. That means if you’re looking at doing a summer vacation, I don’t know that deciding not to drive and taking the plane instead is going to save you any money,” he said.
However, Vijay Muralidharan, managing director of R CUBE Economic Consulting in Calgary, is less confident that the current high prices can be sustained by consumers for long. In fact, he believes significant demand destruction is happening already.
“In my analysis, when the average price goes past $1.80 and stays there a while, demand destruction occurs. So it’s already happening in Canada,” he said.
The reason that pump prices in this country aren’t yet reflecting a reduction in demand, Muralidharan said, is that U.S. driver demand is still so high. Because North American fuel refiners have the option to sell into either the Canadian or U.S. markets, as long as demand remains high south of the border, fuel prices in this country will remain elevated.
In fact, the performance of the U.S. economy is the “biggest barometer” to pay attention to when watching for early signs of gasoline price demand destruction, Muralidharan said.
Up to now, he said, real U.S. disposable incomes have remained high, but inflation and recent interest rate hikes by the Federal Reserve make it likely that consumer buying power in that country is about to take a dive.
“Real incomes are not rising as fast as inflation, (therefore) you will see some sort of pullback in demand,” he said. “My prediction is that by end of July, early August, we will see some sort of (gasoline) price reprieve.”
This report by The Canadian Press was first published June 17, 2022.
Amanda Stephenson, The Canadian Press
Cost of living: Pepsi and Coca-Cola absent in meeting with federal industry minister
Innovation, Science and Industry Minister Francois-Philippe Champagne speaks to reporters in the foyer of the House of Commons on Parliament Hill in Ottawa on Tuesday, Sept. 19, 2023. Canada’s industry minister made a point of calling out Pepsi and Coca-Cola for not sending representatives to a meeting he convened on Monday with manufacturing companies to discuss stabilizing grocery prices. THE CANADIAN PRESS/Sean Kilpatrick
Canada’s industry minister made a point of calling out Pepsi and Coca-Cola for not sending representatives to a meeting he convened on Monday with manufacturing companies to discuss stabilizing grocery prices.
François-Philippe Champagne singled out the two companies when asked by a journalist what the consequences would be if major industry players did not succeed in stopping high inflation.
“This morning, (their CEOs) did not attend the meeting,” Champagne said of beverage giants Pepsi and Coca-Cola.
“I intend to call on them and I will continue to do so. … I don’t stop,” he told reporters.
The Canadian leaders of seven international manufacturing companies, including Nestlé and Kraft Heinz, met with Champagne.
He summoned them to answer to Prime Minister Justin Trudeau’s call earlier this month for Canadian grocers to come up with a plan to stabilize prices by Thanksgiving.
If major grocers fail to deliver ideas, Champagne said, “the consequence is for all 40 million Canadians because we will be able to see who is taking action and who is not.”
A government source told The Canadian Press that the CEOs of Pepsi and Coca-Cola responded to the federal government summons by stating they were not available Monday. The source was granted anonymity because they were not allowed to speak publicly about the matter.
It’s unclear, however, whether another meeting between major food companies and the government will take place.
Monday’s meeting brought together top Canadian executives from McCain, Unilever, Nestlé, Lactalis, Lassonde, Kraft Heinz, and Smucker Foods.
All avoided speaking with journalists. The CEO of the Food, Health & Consumer Products of Canada association, Michael Graydon, attended the meeting and agreed to answer questions on their behalf.
Graydon called the meeting “very productive.”
”We’re very much about co-operation and support, collaboration,” he said. “It’s an industry that needs to align and work collectively to find a solution.”
He said manufacturers want to collaborate with other players in the supply chain, such as major retailers like Loblaw and Costco, whose leaders Champagne met with one week earlier.
In a statement, Pepsi said it is open to meeting with Champagne.
“We are pleased that our industry association, FHCP, led a productive conversation with the government and representatives from industry today,” it said.
“We were not able to attend today’s meeting, but we offered to meet with the minister. We are committed to collaborating with the government to identify solutions during this challenging time for Canadians.”
Trudeau has said that if the government isn’t satisfied with what major grocers come up with to stabilize prices, he would intervene, including with tax measures.
Graydon said it remains to be seen how detailed the plans will be by the government’s Thanksgiving deadline.
”We’ll have to see whether, you know, the detail of how much completeness can be done by that time. But I think everybody’s working very hard to achieve that,” Graydon said.
Champagne said he is happy Graydon “wants to do something,” because “it’s a gain for Canadians.”
“It’s clear that what’s important is that we have timelines, work plans, and obviously concrete actions,” the minister said.
This report by The Canadian Press was first published Sept. 25, 2023.
Alberta set to release report on whether to ditch CPP for provincial pension plan
Alberta Premier Danielle Smith speaks to the media in Calgary, Alta., Monday, Sept. 18, 2023. THE CANADIAN PRESS/Jeff McIntosh
By Dean Bennett in Edmonton
The Alberta government is set to release its long-promised report on whether the province should quit the Canada Pension Plan and pursue its own provincial program.
United Conservative Premier Danielle Smith, along with Finance Minister Nate Horner and panel chair Jim Dinning, are to release the report at a news conference in Calgary on Thursday.
The Opposition NDP says it has received leaked details of what is coming and says Albertans should prepare for some financial flim-flam on the potential benefits.
NDP finance critic Shannon Phillips says the report relies on an outdated financial withdrawal formula dating back to the CPP’s creation in the mid 1960s.
“The report is expected to claim Alberta is owed hundreds of billions of dollars from the fund,” Phillips said in a statement Tuesday.
“However, if every province used this formula, it would total nine times what is currently invested in the CPP.”
The Opposition NDP has accused Smith of playing politics with nest-egg savings, by using an Alberta pension plan to create a wedge issue with the federal government.
The NDP said the idea is offside with public sentiment, given opinion polls suggest ditching CPP is deeply unpopular with Albertans.
Horner’s office did not immediately return a request for an interview.
Economist Trevor Tombe said he’s interested in how the province plans to balance the potential short-term benefit of a young, prosperous Alberta leaving the CPP versus the long-term volatility that comes with fluctuations in demographics and the economy combined with a smaller pool of capital.
Tombe, with the University of Calgary, said the report could launch a multi-year political and legal battle over how a province can leave the CPP, what it gets and what the effect would be on other provinces.
“The CPP’s assets this year are pegged at $530 billion, a pretty significant amount of funds at stake,” said Tombe.
The report is being done by Lifeworks, formerly known as Morneau Shepell, which helps companies with employee and family assistance plans, absence management, pension benefits administration and retirement planning.
Smith has said regardless of the report’s conclusions, Albertans would have the final say in a referendum.
Both Smith and her predecessor, Jason Kenney, have extolled the potential of a go-it-alone program, given Alberta’s wealth and comparatively young population.
The issue has waxed and waned for the last two decades amid concerns Alberta puts in far more than it gets out and may benefit from a stand-alone benefit program such as in Quebec.
The UCP government began studying the Alberta option in earnest in June 2020 under Kenney. Later that year, the outside consultant was hired to study the benefits and drawbacks.
In March 2021, Kenney said work on the report was almost done and his government was just weeks away from announcing next steps. The report never materialized.
In February, Smith’s office said the report was being updated to reflect new figures on the CPP.
Should it take steps to exit the CPP, Alberta would be charting new territory given that Quebec did not exit the plan, but rather didn’t join it when the CPP was created.
The pension plan is part of a suite of measures championed by the UCP to carve out some space between Alberta and the federal government.
Other potential measures include a provincial police force and a separate revenue collection agency.
The provincial police force idea was spelled out in mandate letters to ministers when Smith first took office late last year, but disappeared from the revised mandate letters when she reshuffled her cabinet after winning the May 29 provincial election.
Last month, Justice Minister Mickey Amery said the provincial police force idea is not dead and said his department would continue to consult with Albertans on where they want to go with policing.
This report by The Canadian Press was first published Sept. 20, 2023.
Excess deaths in Canada and most western nations remain very high long after pandemic deaths subside
Moneris confirms credit and debit card processing outage, but offers few details
Military drops sexual misconduct charge against Lt.-Gen. Steve Whelan
Expanding transit access for low-income Albertans
Regulator rules in favour of Trans Mountain route deviation
Parole board warned employees about threats following Saskatchewan stabbings: emails
THE JACKPOT IS OVER $14000 AND THE WINNER WILL TAKE HALF!!!
National2 days ago
U Sports drops first-year grade requirements for participation, scholarships
Top Story CP2 days ago
Judge grants injunction over Saskatchewan’s pronoun policy for schools
Energy2 days ago
First Nation wants reasons for Trans Mountain ruling; says it’s entitled to appeal
Food2 days ago
Food insecurity among Indigenous kids is a ‘public health crisis,’ doctors say
espionage2 days ago
Cyberattacks hit military, Parliament websites as India hacker group targets Canada
Alberta1 day ago
Man dies in Edmonton mall parkade after standing up through car sunroof: police
Justice2 days ago
Moe says Saskatchewan to use notwithstanding clause over pronoun policy
Top Story CP1 day ago
Democratic Sen. Dianne Feinstein of California dies at age 90, sources tell the AP