Business·By the numbers

Cheaper gas will save you money. But how much?

Oil prices have dropped like a stone since last summer. What's that done for disposable income?

Lower gas prices will put billions back into consumers' pockets

Falling gas prices are giving Canadian drivers a welcome break at the pumps. (Seth Perlman/Associated Press)

Falling gas prices are expected to put around $12 billion back into the pockets of Canadian drivers this year. It’s a big number that will help to juice consumer spending and buffer some of the economic harm from lower crude prices.

But what exactly does $12 billion look like on the ground?

To find out, let’s go to the back of the envelope.

Oil is now trading in the neighbourhood of $50 a barrel, less than half of its value last June when prices topped out around $108. The cost of gasoline, in turn, is now averaging in the low 90-cent range (with some wiggle room depending on where you live), down from a national average of $1.35 per litre in the middle of last year. The difference translates to savings of about 45 cents a litre on every fill-up.

What does that mean for the average Canadian driver? Let’s get to know one a bit better. We’ll call her Jane Civic.

If Jane puts 40 litres into her tank at each fill-up, her savings each time she stops for gas, compared with last summer, add up to $18.

If she drives 16,000 kilometres a year, which is around the national average, she’ll log 308 kilometres in her Honda Civic each week. Given her average fuel consumption of 7.9 L/100 kilometres, she’ll typically visit a gas station once every 10 days or roughly three times a month.

At $18 a pop, she’s saving $54 a month on gas versus last summer. That will work out to $648 this year.

Of course, that’s just Jane making her daily commute in a fuel efficient sedan. Someone in a bigger vehicle, like a Ford F-150 or an SUV, will see even more of a break on fuel costs.

Based on current oil prices, economists at TD say the average Canadian household (which includes multi-car families) will save around $875 at the pumps this year.

Adding up all of the Janes in households across the country gets us to $12 billion. As for a cross-border comparison, economists at Goldman Sachs say lower gas prices will equate to a de facto tax cut of more than $125 billion for U.S. drivers.

What does an extra $648 to $875 in disposable income per household mean for Canada’s economy? It depends on whether the money is saved or spent.

For a subjective consideration of consumer spending options that lacks any coherent methodology, let’s take a cross-country survey and see what we can buy:

  • To see what your gas savings might get you in each province check out the map below. On mobile? Click here

ABOUT THE AUTHOR

Paul Haavardsrud writes for CBC's western business desk in Calgary. He is also a producer on CBC Radio’s national business desk where he talks about business on Radio One in the afternoons. Prior to that he worked for newspapers. On Twitter, he’s @paulhaavardsrud.

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