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Canadians no longer spared U.S.-style gas hikes

00:00 EDT Saturday, May 17, 2008

What the data will show

Markets are reeling these days with every new bit of information about inflation, trying to decide whether it's a problem or not. Recent figures from the United Kingdom, where annual inflation is expected to rise to about 3.8 per cent, and China, where inflation is 8.5 per cent, suggest it's a problem. The U.S. consumer price index for April suggests it's just a food and energy issue.

Canada will see April inflation data this coming week, and many economists expect Canada will continue to avoid the higher prices that are causing trouble elsewhere in the world. For motorists, however, those forecasts don't ring true, as gasoline prices hover around $1.29 a litre.

They probably have a point, says David Wolf, chief economist at Merrill Lynch Canada.

In the past, gasoline prices in Canada have not risen as much as in the United States. That's because as oil prices rose, Americans had to pay much more for their gasoline, but in Canada, the loonie rose too, dampening the rise of gas in Canadian dollars. In 2007, gasoline rose 14 per cent in Canada, but 27 per cent in the U.S.

What the pumps will show

But now the loonie isn't trading in tandem with oil prices any more, and motorists are paying the price. The currency has hovered around par for months now, while oil prices have soared.

The result? The price of oil priced in Canadian dollars has risen more over the past year than the previous five years combined, Mr. Wolf's research shows. And for drivers, there's no more Canadian exception. Both Canadians and Americans have seen gasoline prices rise about 21 per cent since the beginning of the year.

That reasoning explains, in part, why Mr. Wolf thinks Canada's inflation rate won't be as benign in April as most economists suggest. The consensus forecast is for consumer prices to rise 0.4 per cent in April from a month earlier, or 1.4 per cent from a year earlier. Merrill Lynch sees 0.8 per cent on the month, and 1.7 per cent on the year.

But that's just splitting hairs for consumers in Britain or China.

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