COUNTING THE COSTS Impacts of the 2022 Oil Price Shock
for Canadian Consumers and Workers
by Jim Stanford and Erin Weir
Published by the Centre for Future Work, Vancouver, B.C.
[url]https://centreforfuturework.ca/wp-content/uploads/2025/03/FalseProfits-March2025-Counting-the-Costs.pdf[/url]
Summary
This report performs a retrospective empirical analysis of the painful inflationary cycle that Canadians experienced in the years after COVID lockdowns. It confirms that the biggest single cause of that surge in inflation was a dramatic spike in oil prices (and resulting prices for other fossil fuel products) that reached a peak with Russia’s invasion of Ukraine. Higher fossil fuel prices directly caused 43% of the cumulative increase in Statistics Canada’s all-items Consumer Price Index from January 2021 to June
2022 (when inflation peaked). Counting the indirect impact of higher fossil fuel prices on input costs in other industries (from transportation to construction to food), that share is even higher.
Other economists have confirmed the leading role of energy costs in both the rise and the fall of inflation in Canada and globally. However, it not all energy costs were to blame: only fossil fuel prices were the problem. Electricity costs in most of Canada rose no faster than overall inflation during this period. Moreover, many economists speak nebulously about ‘supply shocks’ as the reason for higher energy prices, when in fact there was no supply shock at all. World oil supply continued growing during
and after the invasion—and Canada, meanwhile, has never produced so much oil. The oil price spike cannot be explained on the basis of real economic fundamentals (like supply and demand). Rather, the behaviour of speculative and highly unstable oil futures markets (where every physical barrel of oil is traded 13 times on paper, and where sudden changes in investor sentiment can cause prices to skyrocket or collapse) is the root problem. Because of Canada’s decision to tie domestic energy prices directly to those world futures markets, our own fossil fuel prices surged in tandem. The first part of the paper reviews how oil futures markets operate, and shows there was no underlying supply problem to justify the 2022 price spike.
for Canadian Consumers and Workers
by Jim Stanford and Erin Weir
Published by the Centre for Future Work, Vancouver, B.C.
[url]https://centreforfuturework.ca/wp-content/uploads/2025/03/FalseProfits-March2025-Counting-the-Costs.pdf[/url]
Summary
This report performs a retrospective empirical analysis of the painful inflationary cycle that Canadians experienced in the years after COVID lockdowns. It confirms that the biggest single cause of that surge in inflation was a dramatic spike in oil prices (and resulting prices for other fossil fuel products) that reached a peak with Russia’s invasion of Ukraine. Higher fossil fuel prices directly caused 43% of the cumulative increase in Statistics Canada’s all-items Consumer Price Index from January 2021 to June
2022 (when inflation peaked). Counting the indirect impact of higher fossil fuel prices on input costs in other industries (from transportation to construction to food), that share is even higher.
Other economists have confirmed the leading role of energy costs in both the rise and the fall of inflation in Canada and globally. However, it not all energy costs were to blame: only fossil fuel prices were the problem. Electricity costs in most of Canada rose no faster than overall inflation during this period. Moreover, many economists speak nebulously about ‘supply shocks’ as the reason for higher energy prices, when in fact there was no supply shock at all. World oil supply continued growing during
and after the invasion—and Canada, meanwhile, has never produced so much oil. The oil price spike cannot be explained on the basis of real economic fundamentals (like supply and demand). Rather, the behaviour of speculative and highly unstable oil futures markets (where every physical barrel of oil is traded 13 times on paper, and where sudden changes in investor sentiment can cause prices to skyrocket or collapse) is the root problem. Because of Canada’s decision to tie domestic energy prices directly to those world futures markets, our own fossil fuel prices surged in tandem. The first part of the paper reviews how oil futures markets operate, and shows there was no underlying supply problem to justify the 2022 price spike.
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