Canadians are feeling the squeeze of soaring gas prices more than Americans, according to an economist. While gas prices have topped US$4 a gallon in the U.S., prices in Canada have climbed over $2 a litre, the highest in four years. This is the largest monthly increase in fuel prices on record, going back 40 years. The price of crude oil is set at a global level, which means energy prices in North America are heading higher along with the rest of the world. This unexpected new expense will erode spending power on both sides of the border. Gasoline and other fuels make up 2 per cent of personal consumption in the U.S., so if higher prices continue, Americans will be spending US$1,000 a year more on fuel than they would have been spending on other things that make the economy go round. Canadians face similar pressures, with consumer spending lagging their neighbours to the south. Job growth in both countries is weak, but disposable incomes are rising faster in the U.S. because of personal tax cuts. Canadians also carry a heavier debt burden, spending 14.6 per cent of their disposable income on interest payments, compared to 11.3 per cent by American households. This means that more money poured down the gas tank is money that could have been spent on vacations, restaurants, and entertainment for higher-income households, and on food, shelter and clothing for lower-income earners. While U.S. households might be better suited than Canadian consumers to face this new shock, both will pull back sharply in a worst-case scenario for the Iran war.
