Gas prices, inflation impacting consumer confidence: experts

Gas prices and inflation are having a big effect on consumer confidence at a time when businesses were banking on a return to normalcy and normal spending habits.

The assistant chief economist with RBC Economics warns the inflation we were already seeing before the Russia-Ukraine War will likely get a nudge in the wrong direction as suddenly sky-high energy prices start filtering through the economy.

“It’s a very uncertain backdrop right now,” Nathan Janzen told CityNews.

“A lot depends on you know, geopolitical tensions abroad. The Russian invasion of Ukraine has sent oil prices skyrocketing,” Janzen said.

Over time, Janzen said the price of energy tends to effect consumer products and services, “higher gasoline prices raises the cost of transportation for a large broad swath of products.”

The increase in oil prices since the Russian invasion has also added to pre-existing price pressures as well, Janzen said.

For example, if a product inflates during a period like this, and an item goes up in price, it typically stays at the new price, and Janzen said it means the prices keep going up at a slower pace.

Janzen said right now in Canada, the rate of inflation we’re seeing is comparable to that of the 1990’s. With the states comparable to the 80’s. He says some of this is related to geopolitical tension and supply issues, but says there’s likely another factor at work.

When asked if the spending Canadians saw at the federal and provincial levels to help residents out financially during the pandemic also played a role, Janzen said yes.

“I think it is playing a role and part of it is a lot of those transfers from government to households have yet to be spent,” he said.

Janzen says that’s keeping consumer demand high through the rise in prices.

Meanwhile, a word of caution from an associate professor of consumer behaviour at Western University.

“It doesn’t matter that we saw it coming, we’re still surprised by it,” said Bonnie Simpson.

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Consumers are feeling uneasy, which could hamper our attempts at a post-pandemic recovery, and that while individual consumers have unique circumstances, Simpson still expects demand for gas to remain high despite the cost.

“For many people, they don’t really have a choice, but to engage in the commute or engage in, you know, driving the kids to sports, or whatever it is,” Simpson said, “I think there is some conversation about people toning back leisure travel.”

Simpson said a lot of society’s focus right now is on rebuilding the economy and reopening — but gas prices are making them think twice about bringing out their wallets.

“I think we are at the point where people thought they would be spending and where businesses need people to be spending. And yet, we are getting so many red flags in parts of our lives, that confidence is dropping,” Simpson said.

Simpson said research shows people respond differently to perceived financial scarcity due to their own experiences, “if they grew up with resources being tight, they’ve developed coping mechanisms.”

“You absolutely will feel it in all parts of society if consumers are holding back. And I think at this point, you know, many consumers will begin to feel like they have no choice, but to hold back,” Simpson said.