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Gas Prices, Food Costs, And The Stock Market Drop

So here I am, sidelined by a miserable summer flu that still has a strong grip on me even at the end of week two. My head is so foggy that I’m reduced to watching TV’s inane summer programming, the Mike Duffy trial, election promises, and talking heads explaining our current economy.

With this in mind, I give you some random musing from a cranky old lady.

The price of gas

As I write this, the price of a barrel of oil is $39.63 a level not seen since 2004. At that time I lived in Calgary (admittedly one place where the price of gas was lower than other areas) and gas prices hovered around the 75-cent mark. In fact, it didn’t top $1 until 2008 when the barrel was about $142. However, the current price of gas in my area is $1.269. What gives?

Related: Increase in gas prices stirs up . . .complacence?

Here are the reasons given:

1. The barrel is priced in US$
2. Federal and provincial taxes at the pump
3. The cost of refining and transportation
4. There is no correlation between the price of the barrel and the price at the pump.

Here’s my rebuttal:

1. Except for a recent approximately 5 year (heady) period of our dollar being on par – or close to it – with the US $, we have had a lower Canadian dollar since 1976. I think we should be used to that by now.
2. As far as I know, the percentage of government taxes on gas has not increased substantially lately.
3. I realize that crude oil has to be refined and transported to the service stations for our consumption, but that’s a pretty hefty increase – more than any other industry.
4. Come on!

In my opinion, someone is reaping the big bucks here, and it’s not investors.

The rising cost of food

With forest fires threatening our orchards and vineyards, and a growing drought in Alberta cattle country, it seems my weekend barbeques are destined to become just a memory.

Related: The real cost of living

Grocery prices have soared in the past year or so. Depending on the source, beef has increased by 11- 23%, fish by 14%, and produce by 5 – 7%.

Again, blame for the spike in grocery bills fall on the lower loonie. Despite being surrounded by seasonal, local food, most items on our grocery shelves come from outside the country or are purchased in US$.

According to a recent Ipsos Reid poll, 40% of Canadians are concerned about the rising cost of food. Yet, the campaigning politicians blather on about increasing/decreasing TFSA contributions and instituting further tax credits.

I feel badly for those who are on a low, fixed income, or have a large family to feed. It’s not easy to eat healthily for a reasonable amount.

Stock market drop

The financial media was screaming in panic. China’s stock market crash and cut in interest rates signal a red flag for investors.

The markets were reeling with the biggest one-day percentage drop – and biggest sell-off – since 2011.

Related: What you can do about the upcoming stock market crash

The VIX Index, which tracks the prices of options on the S&P500, surged to a level that shows investors are getting scared. (The VIX is often called the Fear Index.)

What do you make of this?

Strong markets do a correction on an almost yearly basis. This tells me that growth may be slowing but is still robust, or at least stabilizing. Recent reports from BMO, CIBC and TD show enough growth to top their forecasts for profits.

If you’ve chosen an investment plan that works for you, just stick with it and ignore the panic-inducing headlines.

Final thoughts

Well, that’s enough thinking for now. I’m off to have a nap.

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13 Comments

  1. Schultzter on August 28, 2015 at 8:08 am

    My rebuttal to your rebuttal:
    #4: that’s economics for you!

    The price charged at the pump is the price people are willing to pay. If you want the price of gas to go down then stop buying gas! Not just for a day or two but until the price is acceptable to you. Oh, and get all your friends and friends of friends to do that too.

    In the long-term there is correlation, either costs don’t cover revenue and you go out of business; or your supplier catches on and raises his prices.

    Of course, many gas companies are vertically integrated, from exploration and extraction all the way to retail. So they’re bathing in cash right now. Independents and less integrated companies are probably just waiting for the whole thing to implode.

    • Boomer on August 28, 2015 at 6:32 pm

      @Schultzter: You make a good point on the whole. But are people “willing” to pay the price? We have turned ourselves into a vehicle needing society – living in the suburbs, huge grocery stores, big box centres – and there is no competition between brands. There is no choice and people just sigh and pay. Yes, I know that someone will say you can walk or cycle, but that’s not always practical for everyone.

  2. Phyllis on August 28, 2015 at 12:43 pm

    A lot of people complain that food costs are high. Don’t we pay much less than we used to? In the early 1900’s people spent something like 50% of their income on food. That number has gone down over time and now I have read that we spend less than 10% of our income on food. We can buy big packages of things like nuts and chocolate for really reasonable prices. Some food price increases must be blamed on the people in the middle. For example, farmers can get a 1 cent per litre increase in milk but in the grocery store it will increase by 20 cents. Likewise with grain; an increase in wheat might mean the cost of a loaf of bread should go up by a few pennies but instead it will go up by 60 or 80 cents. Somebody is pocketing the extra change. But having said that there are still many cheap and healthy foods – eggs, bananas, oats, and beans – just to name a few. Many Canadians own more than a few square feet of dirt that could grow a lot of food but they choose not to use it. I am very thankful to live in a country where eating good food is so affordable.

    • Robin Y on August 28, 2015 at 12:55 pm

      The cost of a basket of groceries has increased (in the Edmonton area) from around $250 to $350-$400 depending on the amount of meat in that basket. I don’t know where you are getting “10% of your income spend on food” from but it is NOT around here. Safeway and their ilk (big chain grocery stores including Superstore) have increased the cost of everything from apples to zuccini. Bread averages $3-$4 per loaf for anything decent and more for “organic” Deli meat has increased 25-50% in some cases. Even bologna is over $1/100g now. (Blech) We are being gouged by all of the stores, and farmers markets are no relief that’s for sure.

    • boomer on August 28, 2015 at 6:50 pm

      @Phillis: I don’t believe that 50% figure for the 90’s. I was just thinking about how much I spent for a family of 4 and it’s closer to 20-25% – and I didn’t have a high income.

      The middle man, and the supermarkets, are taking a good chunk of the proceeds though. At my favourite orchard I can get peaches for 90 cents a pound and at Superstore today they were 2.29.

      • Phyllis on August 29, 2015 at 9:51 am

        50% in the early 1900’s.

  3. Eric on August 28, 2015 at 12:48 pm

    What I find remarkable about the current gas prices is how much more expensive Alberta has become compared to the rest of Canada. Take Nova Scotia as a comparison. I moved to Calgary four years ago. For childish reasons, I tracked the price difference between Halifax and Calgary for over a year (so I could point it out to friends and family when I spoke to them on the telephone…). Over that year (2011), the difference varied between 13 cents and 20 cents more expensive, per litre, in Halifax.
    Fast forward to this morning. Gas is below $1.00 in Halifax for the first time in a long time (98.7 cents). Gas down the street from my office is $1.117.
    Consider:
    – Nova Scotia has a 15% sales tax compared to Alberta’s 5%.
    – Nove Scotia has a 15.5 cent fuel tax compared to Alberta’s 13 cents
    – Nova Scotia has zero refinieries compared to Alberta’s multiple refineries

    Makes you wonder…

  4. Robin Y on August 28, 2015 at 1:01 pm

    Buy your gas at Costco. It is always 4-6 cents a litre less and right now in Edmonton it is 92.9 when the “discount” retailers are still between 1.04 and 1.09/litre. The retail side is gouging and price-fixing. Nothing else explains why the price goes up 14 cents in one afternoon on the RUMOUR that a refinery in the USA might be shut down, and then stays at that price even in the face of 8-10 cent reductions in the wholesale price of gasoline. All the retailers should be flying the Jolly Roger, they are one and all stealing from their customers.

    • boomer on August 28, 2015 at 6:38 pm

      @Robin Y: Large retailers like Costco can bring prices down in some centres. Unfortunately there is no gas station at my Costco, and if there were it probably wouldn’t make much difference to my area as it’s about 45 minutes away.

  5. Mclain on August 28, 2015 at 4:25 pm

    I completely ignored the market down turn except to plop several grand on some sale priced ETFs.

    • boomer on August 28, 2015 at 6:40 pm

      @Mclain: Good for you. Now the market seems to be rebounding and all the ones that were panicking will be starting to buy in again. Sheesh!

  6. Sean Cooper, Financial Journalist on August 29, 2015 at 8:17 pm

    The rise in the cost of meat is crazy. Glad I’m a vegetarian! Here’s an interview I did with Global TV on it:
    https://www.youtube.com/watch?v=t1Mkz8TusF0

    • Phyllis on August 30, 2015 at 9:24 pm

      I won’t argue that food prices haven’t gone up in the last few years but Canada is still one of the most affordable countries to buy food – it is cheaper in the US. Canadians are giving priority to other purchases – newer vehicles, bigger homes, more clothing, more hair cuts, more manicures, etc. One report says that the average Canadian spends more on alcohol than on food. And we spend just as much eating away from home than at home which makes our food much more expensive, but then that is a choice.

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