Canadians continue to guzzle gas
Stronger dollar buffers consumers from price increases
canada.com
Eric Beauchesne, Canwest News Service
Published: Friday, August 15, 2008
OTTAWA - Canadians have been slow to adjust to soaring energy prices, according to a new study that reveals gasoline is guzzling a much bigger share of our incomes, in large part because of the increase in pump prices, but also because Canadians have not cut back on their driving or adjusted their commuting habits.
The share of consumers' incomes being spent on gasoline surged by a third to 3.8 per cent early this year from 2.9 per cent in 2002 when the commodities boom began, Statistics Canada says in the report Thursday.
"Despite the steady escalation of gasoline prices since 2002, Canadian drivers have so far not cut back on their consumption," it says, noting that the volume of gasoline sales has increased steadily each year since 2002 and by more than seven per cent over that period.
"Canadians have only marginally altered their driving habits since 2002, and this is reflected in their use of mass transit," it says, pointing out that mass transit use has barely kept pace with population growth over that time.
In fact, the largest annual increase in gas consumption was just last year despite the cumulative impact of years of rising prices, and a dip in gas guzzling early this year appears to be more due to bad winter driving conditions than higher prices, it adds.
However, consumers are not being squeezed as their increased spending at the pumps has been cushioned by lower prices for other products, especially autos, and by higher incomes, it says in the report, titled "Over a barrel? Canada and the rising cost of energy."
The share of income being spent on auto purchases has fallen to 5.3 per cent from 6.2 per cent in 2002.
"This study raises questions about how fast people are responding to the shift in energy prices," the report concludes.
The rise in gasoline consumption is in contrast to what has happened in the U.S., where it has declined.
American consumers, however, have faced a much steeper 176-per-cent surge in gasoline prices since 2002, double the increase faced by Canadian consumers, who have been cushioned by the surge in the value of the Canadian dollar against the U.S. dollar.
"While gasoline prices have risen significantly, the increase would have been almost twice as much without the rise in the Canadian dollar," it calculates, noting that the savings on gasoline alone to the Canadian consumer from the stronger currency amount to nearly $30 billion, or 3.2 per cent of their disposable income.
Still, the failure of Canadians to cut back on their consumption of gasoline in the face of an 84-per-cent increase in prices since 2002 is also in contrast to past experience in Canada during previous periods of escalating gasoline prices.
"In the past, drivers in Canada have shown they can sharply curtail consumption in the face of higher prices," it says, noting that the volume of gasoline purchases by consumers plunged just over 12 per cent between 1980 and 1984 when prices rose 65 per cent and fell 5.1 per cent from 1989 to 1991 when prices rose 12 per cent.
There are differences this time, however, it acknowledges.
Real incomes, which were squeezed by recessions in the early 1980s and 1990s, have risen steadily since 2002, including an 1.8-per-cent gain in the first quarter of this year.
The steady increase in consumption also reflects the longer distances vehicles are being driven, the increasing number of vehicles on the road, and what has been Canadians' love affair with SUVs and mini-vans.
Canadians drove their vehicles 332 billion kilometres last year, up more than five per cent from 2002, while the number of vehicles on the road has increased nearly 10 per cent, with new auto sales in the first five months of 2008 continuing at a record pace.
The share of larger vehicle sales rose from 2002 to 2007 but has slipped steadily this year, which the analysis says "may reflect the first move by drivers to boost fuel efficiency in response to higher prices."
However, given the 20.3 million vehicles already on the road, at the current rate of 1.7 million new motor vehicle sales a year it will take time to significantly change overall fuel efficiency of the fleet of vehicles being driven, it added.
Also, Statistics Canada senior economist Philip Cross, one of the authors of the report, said the recent shift in purchases to more fuel efficient vehicles may also be related to the recent weakening of the Canadian housing market.
Cross declined to comment on whether the report also undermines arguments that a carbon tax on gasoline would curb consumption. |
