Increasing Energy Exports is Canada’s Best Response to Rising Living Costs

Increasing Energy Exports is Canada’s Best Response to Rising Living Costs

How More Energy Exports Can Help Tackle Inflation in Canada

If you have noticed rising costs at the grocery store, gas pump, your favourite restaurants or anywhere else in your daily life, you are not alone.

Today, much of the world is struggling with supply shortages and increased living costs associated with the technical term “inflation.”

For the first time in decades, this word has made its way onto centre stage for policymakers, and for good reason.

Global Consumer Price Indexes

Of the World's Top 10 Oil Exporters

In recent months, the cost of living has sharply risen all around the globe. The world’s largest economy, the United States, has recently reported a shocking 7 per cent annual change to its Consumer Price Index (CPI), the magnitude of which has not been seen in over 40 years.

While that figure was certainly a head-turner for many onlookers, the situation is even more dire in other parts of the world.

In the United Kingdom, families are facing a 54 per cent jump in their energy bills. In China, the price of fresh vegetables is reported to have gone up 32.7 per cent.

Meanwhile, other countries are faring even worse regarding the rising cost of living across the board. Turkey, for example, recently recorded a jaw-dropping year-to-year inflation rate of 48 per cent.

Here in Canada, we should consider ourselves fortunate to only be experiencing an official 4.8 per cent change in CPI so far.

Record-High Inflation Levels

To put all these figures into perspective, economists worldwide and at our own Bank of Canada have reached a broad consensus that an annual inflation rate of around 2 per cent is healthy.

Anything a few percentage points above that 2 per cent level would have been newsworthy in prior years. So, with such drastic rate changes such as these, everyone should be taking notice.

In Canada, for example, inflation has reached a 30-year high in 2021 - at 4.8 per cent. Why isn’t this news - and perhaps more importantly, what can we do about it?

How Did This Happen?

Canada Ranks First on the

The price changes we are seeing today have never been experienced before by much of the world’s living population.

There is a great deal of debate about how we got ourselves into this problem. Various circumstances such as supply chain disruptions caused by the global pandemic, historically low interest rates, unprecedented government spending packages, energy shortages and even changes in population demographics are all possible causes.

While it’s quite likely that each of the above-mentioned forces (and probably others as well) are all contributing factors to global inflation, we won’t pretend to have an exact answer. Instead, we will wait for expert economists and central bankers to agree on which factors are most responsible.

However, amidst all this uncertainty of what is causing the cost of everything to go up, we can offer substantial clarity on one way of helping solve this problem: Canadian energy.

Canadian Energy Can Help

Canada ranks first on ESG indices of world's top oil exporters

One thing is clear for Canadians – our oil and gas exports are one of the best opportunities we have to fight the rising cost of living.

Interestingly, one of the biggest reasons that our energy exports can have a positive impact in the face of inflation is not necessarily for a reason you may think.

At Canada Action, we regularly remind our readers and supporters of the hundreds of thousands of jobs created by Canadian energy and the families supported by the sector. Yes, that is an essential part of why supporting our responsible oil and gas development matters.

We also regularly remind readers that our energy producers contribute billions of dollars of municipal, provincial and federal taxes for the good of the Canadian public every single year. Of course, that also continues to be a significant reason why Canadian energy matters.

And as always, we would also be remiss if we did not mention that every piece of our society physically relies on the products and energy that oil and gas make possible. Without energy, plastics and other essential petroleum products, almost none of our material objects would exist today. Again, that is a large enough reason all on its own to justify supporting our oil and gas workers.

But with specific regards to the inflationary challenges the world is grappling with, we wanted to take the opportunity to shed some light on the critical importance of a topic that is rarely discussed. That is the positive impact that our energy industry has on supporting the value of the Canadian Dollar, and by extension, the strength of our wallets.

Canadian Energy & Our Dollar

Canada's ranking on ESG indices of world's top 10 oil exporters

To put it into the simplest terms possible, when the Canadian Dollar moves higher, the price of everything we import from other countries moves lower because our Dollar is more valuable.

This is of particular importance today because we import an enormous proportion of the goods used in our daily lives from international sources. In recent years, Canadian families and businesses have imported anywhere between $600 billion (B) and $700B worth of goods and services annually. Moreover, current data suggests that the value of our imports is only growing.

Canada’s imports make up a giant piece of our economy and daily lives. That ~$700B figure is equal to approximately a third of our entire $2 trillion annual gross domestic product (GDP). That means roughly one-third of our entire economy relies directly on things we purchase from other countries. Moreover, that direct figure doesn’t even account for the reality that all of our locally produced goods and services are made by businesses that are importing essential components, further increasing our dependence on international products. As a result, the cost of living and doing business in Canada is inextricably linked to the cost of our imports.

With so many of the things we use and appreciate every day being purchased from our trading partners, it is clear that the strength of the Canadian Dollar is among the most important factors when it comes to determining the cost of living for everyday Canadians.

Again, to put a fine point on it, when the Canadian Dollar is stronger, living costs are cheaper.

In a world where countries might soon be struggling with 10 to 20 per cent annual changes to the cost of living, the same percentage increase in the value of our Dollar would be an enormous boon for the average Canadian family and business. So much so, that a substantial increase in our Dollar’s value could effectively insulate Canada from the inflationary problems being faced around the globe.

Insulating Canadians from Inflation

Canada is the responsible choice to meet growing global energy demand

This is where it is critically important to understand the relationship between our exports and the strength of our Dollar. When the value of our exports goes up, the value of our Dollar immediately goes up as well. This relationship is irrefutable because every Dollar of exports needs to be fulfilled by a Canadian Dollar. So the demand for Canadian Dollars is increased when the products are purchased.

It just so happens that oil and refined oil products are our single largest export by a huge margin. Take a look at the following list of Canada’s top 10 exports by value in 2020 to get an idea of just how much these products account for our nations’ total export merchandise:

  1. Mineral fuels including oil: CAD $88.2 billion (17.7% of total exports)
  2. Vehicles: $59.3 billion (11.9%)
  3. Machinery including computers: $36.9 billion (7.4%)
  4. Gems, precious metals: $29.3 billion (5.9%)
  5. Wood: $17.2 billion (3.4%)
  6. Plastics, plastic articles: $15.8 billion (3.2%)
  7. Electrical machinery, equipment: $14 billion (2.8%)
  8. Ores, slag, ash: $12.6 billion (2.5%)
  9. Aircraft, spacecraft: $12.4 billion (2.5%)
  10. Pharmaceuticals: $10.8 billion (2.2%)

*figures converted from USD into CAD using Google on 2/5/22

Relationship btw CAD & Energy

When it comes to Canadian exports, nothing comes close to the importance of our oil and gas, so the value of our energy exports is the single most significant factor in our nation’s trade balance.

That is why there is an empirically proven relationship between the value of our energy exports and the strength of the Canadian Dollar.

When our energy exports go up, the Canadian Dollar goes up, every time:

USD CAD inverted Crude Oil Correlation Over 25 YearsSource:

The evidence makes it abundantly clear that an increase in Canadian oil exports drives the value of our Dollar higher.

In other words: Increasing energy exports will decrease the cost of living for all Canadian families.

The good news for Canadians? Global oil prices are rising, and the energy demand continues its inevitable march upwards.

When writing this article, the two most commonly accepted benchmarks for crude - the Brent and WTI barrels - both hit $90 for the first time since 2014.

The last time oil prices were this high, the Canadian Dollar was higher than the United States Dollar, and the cost of everything around us reflected it. If this trend continues and Canadians continue to support our energy sector, we will continue to see the benefits of our energy exports. As the energy demand continues to rise, we can strengthen the wallet of every single Canadian.

And the best part in all of this is that it’s not just good for Canada; more Canadian energy is good for everyone because of our global leadership on emissions reductions, carbon capture and industry collaboration.

The World Needs More Canadian Energy

I love canadian oil and gas banner

Global nations need affordable energy to deal with their own economic challenges. Canada can be a part of the solution.

Canadians owe it to our international partners to step up to the plate and provide everyone with our responsibly produced oil and gas – for the good of our country and the global environment.

Meanwhile, we can help supply our neighbours and other global nations with energy from a reliable and sustainable source that lives up to the highest environmental standards on the planet.

Supporting Canadian energy exports is our country’s best bet when addressing the rising cost of living - that rings true for Canadians at home and our friends abroad.

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