Global oil price weakness is hurting Alberta, but…

by Ephraim Vecina20 Dec 2018

A global downturn in petroleum prices has reduced pressure on the Canadian economy in the latter part of 2018, with new data from Statistics Canada showing that inflation went down from October’s 2.4% annual growth to 1.7% last month.

StatsCan noted that if oil is not taken into account, inflation as of November 2018 would’ve been 1.9% – leaving Alberta to take the brunt of the economic impact.

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“Bad news for Alberta has been good news for Canadian consumers, as cheaper gasoline has brought inflation down to earth,” CIBC chief economist Avery Shenfeld wrote in a client note, as quoted by The Canadian Press.

TD Bank senior economist James Marple argued that the latest numbers give the Bank of Canada a good reason to keep interest rates flat, instead of a hike in January.

“With some of the volatility we’ve seen in the financial markets and the lower oil prices’ impact on economic activity in Western Canada, the Bank of Canada can afford to be cautious and will be in no rush to their next rate hike,” Marple said.

Read more: Investors have little to fear of a housing meltdown

Alberta’s households will be among the provinces most affected by any interest rate increase, the Royal Bank of Canada said earlier this year.

This is because of a higher household debt average compared to the rest of the country, stemming from a borrowing spree during the oil industry’s boom in years past, RBC senior economist Robert Hogue explained.

“Given expensive housing markets in British Columbia and Ontario, it would be natural to assume that households in those provinces would be the most vulnerable [to rising interest rates],” Hogue wrote in a research report, as quoted by Bloomberg. “However, our research shows that Albertans would see the biggest increase in debt-service payments in Canada.”

Hogue warned that a 1% increase in interest rates would add a further $1,200 in the annual cost of servicing debt for the average Alberta household, compared to the estimated $1,100 in B.C. and $1,000 in Ontario.


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