Rising energy prices are eroding the purchasing power of Canadian households, according to a special report released by Scotiabank Economics Friday.
The findings in the report illustrate that if average energy and utilities prices were to increase by 5%, this could divert as much as $4 billion from other less discretionary purchases.
“The rapid expansion in industrial activity among emerging markets, led by China, has been a major factor in lifting global energy demand,” said Scotiabank senior economist, Adrienne Warren, in a release.
“Meanwhile, periodic bouts of geopolitical tension have added to supply concerns. In Canada, the pressures of strong population growth, industrial expansion and aging infrastructure have raised electricity and water costs.”
The report also indicates that the potential for real energy prices to continue to drift higher over the medium term creates a strong economic incentive for Canadian households to reduce their energy consumption — or at least slow its rise.
“Any potential savings could be redirected to other spending, saving or paying down debt,” Warren added. “Longer-term, reducing energy consumption would lower the sensitivity of household spending and the overall economy to any future price shocks.”
The report notes that the retail price of gasoline, fuel oil, electricity and water have all notably outpaced broad inflation since the 1980s, increasingly so since the new millennium.
Gasoline accounts for slightly more than half (56%) of household energy expenditures. Its share of the average household budget has steadily increased over the past decade and a half, reversing the declining trend from the early 1980s through the mid-1990s.