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Pain at the pump may be more acute for Americans

Gasoline is priced over $5 per gallon at a Chevron gasoline station in downtown Los Angeles, California March 13, 2012.


The pain at the pump

Sure, U.S. drivers pay less for gasoline than Canadians – but Americans may be feeling the pain at the pump more intensely than we are.

The reason is that the pace of price increases has been far higher in the United States than here, thanks to the rise of the loonie.

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The Canadian dollar has appreciated by a third against the greenback over the past decade, cushioning the impact of surging prices for crude oil, which is bought and sold in U.S. dollars.

The result is that the average retail price of gasoline in Canada has roughly doubled in the past decade, while in the U.S. it has almost tripled, Douglas Porter, an economist at BMO Nesbitt Burns, said in a report last week.

"Note that while the chart suggests an incredibly tight correlation between Canadian and U.S. prices, the U.S. has a much wider range — and its prices are up 178 per cent in the past decade, versus a 94 per cent rise in Canada," Mr. Porter said. "The strong Canadian dollar has helped."


A widening gap

Don't believe the official numbers: Canada's job market is nothing to brag about, but we're doing far, far better than the United States.

Government statistics show unemployment rates of 7.4 per cent for Canada and 8.3 per cent for the U.S., a relatively tiny spread of 0.9 percentage points. But this hides an important difference – the different definitions that the two nations use to calculate the number of people looking for work.

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In Canada, if a person says they are at least looking at job ads, they're counted as being in the labour force. The U.S., by comparison, requires someone to be more vigorously looking for work to be counted as part of the labour force.

Calculating unemployment the same way for both countries would put the Canadian jobless rate close to 2 percentage points below its U.S. equivalent, Derek Holt and Dov Zigler, economists at Bank of Nova Scotia, said in a report.

If Canada used the U.S. definition, our jobless rate would be at least a percentage point lower than the official number. "The spread between Canada's official unemployment rate and the unofficial measure that Statistics Canada regularly tracks on an unpublished basis is at its widest ever," the economists said. "Canada overestimates the unemployed in the unemployment rate calculation relative to the U.S."


Bond investors love Canada

The world has had a crush on Canadian bonds, but has been shunning our country's stocks.

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The amount of money allocated by global bond funds to Canada has been on the rise since mid-2010 and reached a record high in January, according to data compiled by EPFR Global. But money flowing into Canadian stock funds worldwide has been shrinking, with net outflows since August, the data show.

Bond investors like Canadian debt as an alternative to U.S. Treasuries, whose yields are near record lows. Equity investors, meanwhile, expect higher returns from stocks in the U.S. and Australia, as they bet on a U.S. economic recovery and continued growth in Asia.

For bonds, "a lot of the money that is sloshing around is looking for a conservative home with at least a half-decent chance of some gain," Cameron Brandt, head researcher at Cambridge, Massachusetts-based EPFR, said in an interview. "The bet is that Canada can afford to raise its interest rate because it's not fundamentally [in as bad economic shape]as the U.S."

However, investor sentiment could be shifting. EPFR data suggest that Canadian equity funds pulled in over $400-million during the first two weeks of March, suggesting growing interest in Canadian stocks.

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About the Author
Investment Reporter

Nicolas Johnson has covered global finance, markets and investing since 1998. He joined The Globe and Mail in 2011. He has worked as a reporter and editor with Bloomberg News in Paris and Tokyo, and also worked briefly in emerging-market debt at Société Générale. More

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