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Rising Energy Prices Squeeze Household Budgets: Scotiabank

TORONTO, ON--(Marketwired - June 06, 2014) - Rising energy prices are eroding the purchasing power of Canadian households, according to a Special Report released by Scotiabank Economics today. 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. "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," Ms. Warren added. "Longer-term, reducing energy consumption would lower the sensitivity of household spending and the overall economy to any future price shocks."

Highlights in the Report include:

  • A discernible long-term upward trend in the cost of energy products is fuelling the growing household energy bill. 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.
  • More Canadians are choosing high-density living. On a per square foot basis, apartments, townhomes and semi-detached homes are significantly less energy intensive than single-detached homes. Higher-density living in turn leads to lower motor vehicle use due to the greater proximity to services and better public transportation options.

Read the full Scotiabank Special Report online at: http://www.scotiabank.com/ca/en/0,,3112,00.html.

Scotiabank Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

Scotiabank is a leading financial services provider in over 55 countries and Canada's most international bank. Through our team of more than 86,000 employees, Scotiabank and its affiliates offer a broad range of products and services, including personal and commercial banking, wealth management, corporate and investment banking to over 21 million customers. With assets of $792 billion (as at April 30, 2014), Scotiabank trades on the Toronto (TSX: BNS) and New York (NYSE: BNS) Exchanges. Scotiabank distributes the Bank's media releases using Marketwired. For more information please visit www.scotiabank.com.

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