Smart long-term thinking on personal finance demands that you put energy efficiency high up on your list of must-haves in buying cars and houses.
A recent report from Bank of Nova Scotia says household energy and utility prices have risen 5 per cent this year, which is more than double the rate of inflation. “Given the potential for real energy prices to continue to drift higher over the medium term, there is a strong economic incentive for Canadians to reduce their energy consumption – or at least slow its rise,” economist Adrienne Warren wrote.
The narrative on risks to your household budget has for a while largely focused on higher interest rates. But upward pressure on rates is weak right now, while the cost of oil, gasoline and natural gas has been rising steadily. Higher natural gas prices recently prompted Ontario gas utilities to sharply increase their monthly charges to customers.
Gasoline prices have also been rising, but more so in some provinces than others. GasBuddy.com shows that gas prices in British Columbia have risen 3.1 per cent in the past 12 months, while those in Ontario are up 8.5 per cent. The overall inflation rate in May was 2 per cent. Looking ahead, Ms. Warren sees energy prices rising at a little above inflation, with gasoline prices having more room to increase than natural gas.
Her report makes a key point about the impact of higher energy prices on household spending: Most families are unable to quickly change their behaviour and activities to offset rising energy prices. That’s why you have to think about what you can do today to limit the impact of higher energy costs in the future.
Now is a great time to replace an older vehicle with something more fuel efficient because of the wide availability of low-rate financing deals. Buyers, remember Carrick’s Rule of Car Buying. If you can’t afford the payments over five years, you can’t afford the vehicle.
Whatever you buy, push fuel consumption higher up on your list of ideal features. Ms. Warren says in her report that consumers have skewed toward buying less fuel efficient light trucks in recent years. Light truck sales exceeded car sales for the first time in 2009 and now account for 57 per cent of passenger vehicle sales.
If you’re checking out car dealer showrooms in the months ahead, be aware that vehicles for the 2015 model year will have lower posted fuel consumption numbers than comparable 2014 models, thanks to tougher government testing standards.
Energy costs should figure into your thinking on home buying in a few ways – one of them being the decision on whether to buy in the city or the suburbs. If you buy in the suburbs and commute using your car instead of public transportation, rising gas prices will have a major impact on your household cash flow. A case that urban living can be cheaper than suburbia was made in my personal finance column from a few months back.
Don’t buy a home of any type without first checking into its energy efficiency. Find out what level of insulation there is in the attic, what the monthly heating bills are and how new the furnace is. When our own decades-old, mid-efficiency gas furnace conked out this winter, we replaced it with a new high-efficiency model that cut our heating bills by about 20 per cent. Our hydro bill dipped a bit, too, because the furnace has a more efficient fan motor.
Ms. Warren’s report notes that high-rise apartments or condos as well as town homes and semi-detached homes use significantly less energy than conventional detached homes. Also, newer homes tend to be more energy efficient than old homes as a result of stricter regulations and improved building technologies and materials.
Energy prices are still well below their peaks in 2008, before the global financial crisis put a lot of the global economy into recession and depressed demand for oil, gasoline and natural gas. Global growth remains tepid, but energy is influenced by many other factors than just demand. A cold winter helped drive up natural gas prices. Off and on, conflict in the Middle East has elevated oil prices.
Barring a major economic setback, energy prices are heading higher. The far-sighted among us will protect themselves by emphasizing energy efficiency in their choices of homes, cars and lifestyle.