Savings at the pump not offsetting soaring produce prices, experts say

TORONTO – Canadians may be pocketing some extra change at the gas pump and on their heating bills because of the plummeting price of crude, but experts say soaring food prices are more than offsetting those savings.

“The percentage of our budget that goes to transportation is a lot smaller than the percentage in our budget that’s consumed in food,” said Ian Lee, an economics professor at Carleton University’s Sprott School of Business.

“Yes, we’re saving at the pump, however the savings tend to be more than offset by what we’re paying within the food stores.”

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The Bank of Canada’s efforts to stimulate the economy this past year by slashing its overnight lending rate has been one element in the loonie’s slide, consequently nudging the price of fresh produce – which is predominantly imported – higher.

The cost of fruits and vegetables climbed between 9.1 and 10.1 percent this past year and that is likely to continue rising, according to a study by the Food Institute at the University of Guelph.

“A lot of what we should buy as a consumer is imported,” says Perry Sadorsky, associate professor of economics in the Schulich School of Business at York University. “A lesser dollar just makes the cost of importing more costly.”

Meanwhile, gasoline prices haven’t fallen as dramatically because the price of crude, which is down roughly 75 per cent from the peak in June 2014.

So much of what we buy as a consumer is imported

“When you learn about lower oil prices, it does not necessarily translate into lower gasoline prices,” Sadorsky says. “The integrated oil companies tend to keep your price in the pump higher to be able to make amends for some of the lost profits they’re incurring around the production side.”

On balance, which means many individuals are feeling pinched.

The situation is a whole lot worse for low-income families or those residing in poverty, a lot of whom don’t use whatever savings whatsoever in the decrease in the price of crude.



Although higher food costs are hurting Canadian consumers in the short term, Lee says that in the long term, the financial institution of Canada expects the advantages of its monetary stimulus to outweigh the negatives.

“(BoC) Governor (Stephen) Poloz has made it very clear … that the benefits of the lower interest rates take time to work their way with the economy and generate more growth,” said Lee.

“Right now, the low interest rates – that are driving down the dollar – are generating more costs than benefits. However, in the medium term, the Bank of Canada believes that situation will change. That is to say, the advantages increases using the passage of time.”