Provinces’ buying power rose with commodities

Increases in commodity prices and the value of Canada’s dollar, tied to a drop in import prices, boosted purchasing power for most provinces in the last five years, according to Statistics Canada.

In a new report released Tuesday, the federal statistics agency found that for all provinces except Prince Edward Island, real gross domestic income per capita grew more than real gross domestic product per capita between 2003 and 2007.

(Real gross domestic income is a measure of the real purchasing power of income, taking changes in productivity and inputs into account, as well as the impact of relative price changes on both imports and exports.)

The post-2002 period stands out compared to the early 1980s, when only some commodities showed large swings in prices. In the period studied, prices of almost all commodities increased, StatsCan economic analyst Ryan Macdonald wrote.

That, combined with pressure on the prices of manufactured goods as China integrated more into the global economy, caused import prices to drop for a “wide range” of goods. For many provinces, a drop in the prices of imports was just as or more important than rising export prices, StatsCan said.

For example, in Alberta, Manitoba, British Columbia and Quebec, the prices of those provinces’ major exports increased, while the prices dropped on goods they imported.

In Saskatchewan, Nova Scotia, New Brunswick, Newfoundland and Labrador, however, imported goods’ prices rose — but not as quickly as the prices of those provinces’ exports, leaving them with a net improvement in purchasing power.

In Ontario, the prices of its imports and exports both dropped, but the prices of its exports dropped more slowly, improving the province’s terms of trade. That leaves P.E.I., where export prices declined while import prices rose, resulting in “deterioration” in terms of trade, Macdonald wrote.

Also unlike the early 1980s — when oil prices dropped quickly, oil-importing provinces saw trade gains, and oil-producing provinces did not — the 2003-07 period showed trading gains to be an important source of real income growth for most provinces.

Dependence

Macdonald noted, however, that many provinces remain dependent on particular sectors, which makes them sensitive to changes in demand and prices for particular goods.

For example, the agency cited exports from Prince Edward Island, 68 per cent of which came from agriculture and fishing products, by value; from Ontario, where 43.3 per cent of exports by value are automotive products; and from Alberta and Newfoundland, where energy exports accounted for 69 and 69.4 per cent of total exports by value.

That said, “the two major differences between the post-2002 years and the 1980s and 1990s — the widespread commodity price rises and the integration of Asian manufacturers into the global economy — have allowed almost all provinces to benefit to some degree,” Macdonald wrote.

“Because the source and composition of the relative price changes were substantially different from previous periods, the response of the provinces has been more consistent across the country and, in many cases, stronger.”

Canada’s economy is in the middle of a “structural shift,” fuelled largely by these relative price changes, StatsCan’s Macdonald wrote. “By examining the structures of the provincial economies, and their differential response to relative price shocks, it becomes clear why Canada as a whole has done so well in the face of rising commodity prices and an appreciating currency with its largest trading partner, the United States.”

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