Monday, April 18, 2011

Rising gas prices sandbag economy

Rising gasoline prices are having a dramatic effect on the Canadian economy.  A $1 rise in the price of gasoline will suck $32 Million a day out of goods and services that Canadians would otherwise be spending money on. This adds up to over $11 Billion  a year. 

There is a multiplier effect on this money as Canadians decide to use their car less and stay home When they stay home they are not spending money in restaurants, amusement parks, cinemas or other places we go to for entertainment. Alternatively for some markets there may be a rise in spending as Canadians choose less costly alternatives for spending their money. For example, MacDonalds over a full service restaurant. 

My contention is that overall the cost of gasoline will be a big drag on the economy as it sucks money from other areas of spending. If that money was spent in a restaurant for example, the restaurant will be using it to pay salaries and food and beverages. This would all contribute to the growth of our GDP. True the money spent on gasoline will be considered part of our GDP, but how much of it will truly go back into the economy. will gas stations be hiring more staff or building more stations? Probably not. 

Some interesting information for this analysis come from Statscan - Motor vehicle fuel sales and Gas Buddy. Canadian spend about $4 Billion a month eating and drinking outside the home Food services and drinking places

Bill Tufts
Fair Pensions For All

1 comment:

  1. It is scary to think that we may be paying close to $2 at the pump this summer. The effect this will have on the economy will be drastic, to say the least. However, there are a few different ways to help reserve fuel when it comes to driving and your car.