Rising fuel costs a 'double whammy' for consumers

With gasoline prices spiking at pumps across the country, analysts say that Canadians could also be paying more for goods and services as companies try to pass on the rising cost of fuel.

Ballooning fuel prices have left many motorists reeling recently, and experts predict that the surge in prices could also change the way Canadians use their increasingly stretched incomes.

Indeed, companies don't simply swallow the cost when their cost of business goes up, said Brian Yarbrough, a retail analyst at Edward Jones in St. Louis, Mo.

"It just usually gets passed on to the end consumer and the consumer usually ends up paying more. It can be a double whammy," he said.

In turn, that changes spending habits.

"Consumers are paying more so they have less cash in their pockets to spend on discretionary items."

Gas prices jumped by as much as 5 cents a litre to above $1.40 on average across the country earlier this month, and some experts see that price climbing even higher by the summer.

The big oil companies blamed the conversion from winter to summer gas for the sudden hike.

So how will Canadians cope?

Some will hold back spending on so-called discretionary items, while others will simply opt for more cost-effective versions of the consumer goods they hold dear.

In fact, experts see consumers taking a frugal stance, as they try to stretch their hard-earned dollars even further in the wake of the rising price.

"It has to take away from their discretionary spending. It is almost like a tax," said William Chisholm, a retail analyst at MacDougall, MacDougall and MacTier in Toronto.

"The end result is that the discretionary dollars are fewer, so spending on other non-essential things is curtailed."

Typically as higher gasoline prices surface, consumers shift their spending habits away from expensive purchases such as cars and appliances.

The consumer also limits spending on discretionary items such as clothes, expensive meals and other forms of entertainment as they begin to cut back.

"It affects the consumer's frame of mind, because they don't feel as comfortable when gas prices are high, so their confidence to go out and purchase bigger items may wane a little bit," said Yarbrough.

Consumers will also shift from brand name items to the less expensive generic brands of everything from toilet paper to snacks in a bid to shave costs.

"They may opt to buy a less expensive version if they can," said Maureen Atkinson, a senior partner at J.C. Williams Group, an independent retail consulting firm in Toronto.

"For certain things, there are less expensive versions of it and acceptable substitutes, while other things are not as acceptable, so either you buy it, or you don't buy it."

Pattie Lovett-Reid, CTV News Channel's senior financial commentator, agreed with those assessments.

Faced with rising gasoline prices and shrinking consumer discretionary options, consumers are forced to make some sacrifices, she said.

"I think people are really going to look very closely at their discretionary items because the bottom line is, they only have so much money coming in. They are going to have to choose very wisely what they are going to spend that money on."