The economic impact of higher oil prices
CBC News Online | March 17, 2005
It's not just gasoline prices that go into spasms when the price of crude oil spikes. Many everyday products depend on a stable and inexpensive supply of oil.
Most carpets we buy for our homes are made from nylon fibre. Nylon is one of the plastics that still use petroleum derivatives in the manufacturing process. As well, anything made from polyester and many pop bottles also depend on petroleum derivatives.
In 2004, as oil prices touched record levels, Canada's largest manufacturer of carpets Beaulieu Canada increased prices. The company churns out just over half the carpeting in Canadian homes and offices.
"In the short term we…are passing along increases to the retail flooring companies of anywhere from three to five per cent," Tom Wickson of Beaulieu Canada told CBC News.
Still more products that depend directly on the oil industry include hosiery, floor wax, tires, house paint, artificial turf and artificial limbs.
But the list is not as long as it was before prices hit their peak in 1979. The plastics industry until then heavily dependent on oil changed the way it made products. It switched from materials that contained or were derived from benzene to materials dependent on ethylene, which meant a shift from oil to natural gas.
The move made sense at the time. Canada's natural gas prices were rock bottom and stayed that way, until 2002.
"Natural gas prices peaked [in 2003] and have started coming down a bit," Faris Shammas of the Canadian Plastics Industry Association told CBC News Online in May 2004. "North American natural gas prices are the highest in the world and gas doesn't travel as well as oil."
Producers of products that don't depend on oil in the manufacturing process still feel the pinch of high oil prices. Ninety per cent of what we buy and sell is shipped by truck in this country. Higher fuel prices mean higher shipping costs.
The Canadian Trucking Alliance notes that fuel is the second largest component of trucking costs after labour. If those costs aren't passed on to the shippers and eventually, to consumers it comes straight out of the company's bottom line.
It all adds up to the possible return of inflation, says Patti Croft, chief economist with the investment house Phillips, Hager & North.
"We haven't had to talk about inflation for a long time," Croft told CBC News. "It wasn't that long ago we were worried about deflation when prices were actually declining…What's happening is commodity prices are increasing and that is finally being reflected in the goods we're buying. It's getting to a point where companies pass on those price increases and that's a change. Companies haven't had that pricing power for a long time."
The flip side of the equation higher oil prices mean more money for producing countries. Canada is a net exporter of oil, with most of that activity based in Alberta. When the oil patch booms, oil companies buy more trucks and steel, which come from central Canada.
Prices rise in another sector as well, says David Yeager, president of Patch Safety Services Limited. Some mutual funds and pension plans do well when oil prices are high.
"Most of these pension plans hold large equity positions in the oil industry," Yeager said. "As you bleed at the gas station, your retirement savings may be going up, depending on how your retirement funds or pension funds are being invested."
In Winnipeg, one charity blamed high gas prices for a fall-off in the number of volunteers it has recruited. Meals on Wheels delivers food to the sick and elderly. The organization depends on volunteer drivers, who pay their own gas expenses.
"We have had some volunteers cut back on the number of runs that they were making," spokesman John Walton said. "Some that were doing it twice a week are now doing it once a week, and they're telling us that it's because of the gas prices."