Alberta extends and expands consumer relief as provincial inflation rate climbs to 7.1%

Alberta will extend its fuel tax relief program until September and provide monthly electricity rebates of $50 this summer afternews that inflation in the province climbedto 7.1 per centin May.

The United Conservative government said Wednesday it would continue to hit pause on the collection ofits13 per litre provincial fuel tax, extending a program that went into effect on April 1.

Shortly after making that announcement, it saidit would also provide homes, farms and small businesses with $50 monthly credits for their electricity bills in July, August and September.

"We are providing targeted support to help hard-working Albertans deal with the rising cost of living,"Dale Nally, Associate Minister of Natural Gas and Electricity, said in a statement.

"These rebates, combined with the fuel tax exemption and upcoming natural gas rebate, will help the large majority of Alberta households pay their bills while we make the long-term changes needed to make energy more affordable in the years ahead."

With the fuel tax relief, the government said it will evaluatethe program quarterly and reinstateit in stages only if the average price of West Texas Intermediate (WTI) crude oil fell below $90 US per barrel.

For the four-week period ending June 15, WTI averaged $115.88 per barrel, according to the province.

The government will re-evaluate the program in September.

With respect to the electricity rebates, the province said eligible Albertans will receive an automatic $50 rebate on their bills. It is being applied directly to eligible utility bills, requiring no application to start receiving the rebate in July.

The $50 rebates will apply to the entire bill, the government said, not just the energy portion.

Nally also confirmed that the provinceis developing a natural gas rebate program for the fall.

In a statement, NDP energy critic Kathleen Ganley said the electricity rebates are something, but they're coming too late and won't do much to help struggling families.

"The UCP is OK with Alberta families being forced to choose between putting food on the table and keeping the lights on," Ganley said.

"Fifty dollars is not going to solve that problem."

The province announced its plans Wednesday as Statistics Canada data showed that inflation in Alberta reached 7.1 per cent in May, up from 6.3 per cent in April, driven in large part by rising transportation costs.

"In Alberta,inflationaccelerated to 7.1%, due to a rise in gasoline prices," wrote Charles St-Arnaud,chief economist with Alberta Central, the central banking facility for the province's credit unions, in an analysis Wednesday.

"As it is the case nationally, most of theinflationis due to higher energy costs (gasoline, electricity and natural gas), home ownership cost, motor vehicles and food prices.

"We note that both headline and coreinflationfor the province remains slightly lower than in the rest of the country and it has been the case since October 2020."

Canada's inflation rate for the same month reached7.7 per cent its highest point since 1983. Compared to other provinces, Alberta's rate was near the lowest, second only to Saskatchewan's seven per cent.

Inflation in Alberta

University of Calgary economist Trevor Tombe saidthe province's gas tax relief is part of the reason why inflation is slightly lower in Alberta. Without it, the rate of inflation in Alberta would likely be more like 7.6 per cent, instead of 7.1 per cent.

"Nearly the full amount of the gap between Alberta's inflation and the rest of the country is because of gasoline," he said.

Gas prices are still up in Alberta year-over-year, but they've gone up less in this province than in others. Prices are up about 31 per cent in Alberta, Tombe said, compared to about 50 per cent nationally.

But even though the program offers some temporary relief and some political advantages, he's not sure it's the best idea.

"That money could have been used for other things, perhaps more targeted support to families who need it," he said.

"Second, it increases demand for fuel so it is an inflationary move. Not if just Alberta does it, because we're kind of small, but if it's a policy that's more widely adopted, then it would add to inflationary pressures."

Impact of interest rates

Another notablefactor that's added to the overall increase in inflationare rising hotel and air transportation costs, Tombe said.

"They've changed from something that's pulling down the rate of inflation to something that's adding to it ... That's the really notable factor."

As for when economists expect things to look better, St-Arnaud says the pace of inflation may slow heading into the second half of the yearas the price of oil begins to plateau.

There's also the Bank of Canada's continued interest rate hikes.

A lot of what's causing inflation is outside of the central bank's control, but the changes may have an impact on one big area, Tombe says.

"If new home prices fall, as we are starting to see in many markets, then it's going to mechanically start to pull down the rate of inflation."

New home prices don't feed directly into inflation, but things like maintenance costs, building materials and utility bills all factor into its calculation.

Canada's central bank raised its benchmark interest rate to 1.5 per cent earlier this month and signalled that more hikes would be on the way later this year.