A new study from the Centre for Future Work is pinning most of the blame for Canada’s post-COVID-19 inflation on fear-fuelled fossil fuel price hikes — and the authors warn it could happen again as U.S. President Donald Trump’s trade policies rattle global markets.
According to the study published Tuesday morning, oil and gas companies raised their prices around the time of Russia’s invasion of Ukraine in early 2022 based on assumptions the war would disrupt fossil fuel supplies. This supply shortage didn’t actually materialize, but the authors found that these price-tag increases set off a chain reaction of higher prices for Canadian consumers that cost households $12,000 each between 2022 and 2024.
While the study recognizes that there were many causes for inflation coming out of the pandemic, the authors argue the fossil fuel industry was the largest single source.
“If we want to ascribe blame for why things got expensive and affordability became a problem,” said Jim Stanford, one of the study’s co-authors and director for the Centre for Future Work, “well, this is the place we should start.”
Using data from Statistics Canada, Stanford, who is also a freelance contributing columnist for the Star, and co-author Erin Weir found “four buckets of costs” from these fossil fuel price hikes that impacted Canadians.
The first two buckets are the direct higher costs felt at gas pumps, along with indirect increases in other sectors that are heavily reliant on fossil fuels.
These indirect impacts include grocery prices — which Stanford noted likely took on most of the blame for inflation due to how frequently people shop for food.
“Grocery stores definitely played a role (in inflation),” Stanford said. “But the impact of grocery profits is small potatoes compared to what we’re seeing from oil prices.”
The last two buckets are tied to high interest rates. According to the study, the Bank of Canada’s decision to raise interest rates can be partially attributed to higher fossil fuel prices.
“The Bank of Canada doesn’t respond immediately to changes in energy prices and other volatile prices,” Stanford explained. “But they do respond when those changes filter into broader inflation.”
Higher interest rates, the study argues, directly raised costs for households and weakened labour markets, generating what the authors called “lost employment income.”
Oil prices are recognized as a “key determinant” of inflation in the broader economy, explained Mark Kalegha, an energy finance analyst for the Institute for Energy Economics and Financial Analysis. Kalegha was not part of the Centre for Future Work study.
“Generally speaking, oil prices feed into a lot of other prices,” Kalegha said, “and a lot of industries that rely on oil for manufacturing, heating and general energy needs.”
While Stanford described Tuesday’s study as “a forensic exercise” looking at the past few years of inflation, he said the findings are still relevant due to Trump’s “erratic actions” around tariffs and international conflicts in Ukraine and the Middle East.
“I think we’ve got to look forward, because with Trump all over the place, both economically and geopolitically, we are going to get another breakdown somewhere,” he said. “And the way those world oil markets work is so speculative, we’re going to see enormous swings in oil prices that have nothing to do with supply and demand.”
Stanford said the Canadian government can prepare itself by creating a redistribution tax on the fossil fuel industry to direct any added profits from energy price increases to consumers, and by switching to more renewable forms of energy to become less dependent on oil.
Kalegha also said a shift away from fossil fuels could help governments adapt, but noted such a move is “a tall order” for countries.
Stanford added that ordinary Canadians shouldn’t accept the “roller-coaster” of world oil markets as natural or inevitable. The study notes that oil supplies — which companies blamed for raising prices — actually increased between 2021 and 2022, to 101.3 from 96.7 million barrels a day.
“We didn’t have to go through that,” Stanford said. “And maybe we should think about this so that we don’t go through it needlessly again in the future.”
