Hi Mike,
Gasoline today was at about 128.5 cents per L. The equivalent would be $4.86 per gallon (the currencies are at par at the moment). Some quick googling indicates that gas prices in Buffalo were $4.35 per gallon. I'm surprised the spread is so small given how much people howl here about our 'high' gas taxes.
How is it affecting the Canadian economy? Inflation is about 2.2%, which is forecast to rise to 4.2% next year, then drop back to the target 2% in 2010. The rise in oil price has been tempered by the increased buying power of the Canadian dollar. Not only are those US bucks cheaper to buy oil, but so too are many of the consumer products that are imported. We still haven't seen a full price adjustment on many items, notably cars.
As far as how leaders are reacting, that's an interesting question. Harper is mum about his promise to offer a GST holiday on gasoline prices in excess of 80 cents (IIRC), as well as the billion dollar windfall the federal government is receiving in unexpected GST revenues due to the high cost of fuel. I can't say he's articulated any strategy for dealing with high fuel prices.
Dion, on the other hand, has chosen this time to advocate the introduction of a carbon tax, starting at $10 per tonne and rising to $40 over four years. As gasoline is already taxed at a rate equivalent to ~$40 per tonne (per litre fuel excise tax), the price of gasoline would not rise, but other forms of fossil fuel would (coal, heating oil, natural gas). Once fully rolled out, the tax will bring in $15 billion in revenues, to be offset by equivalent income tax reductions for persons and businesses, as well as a some benefits to reduce the regressivity for low-income earners. Dion is using the summer to sell this plan in the hopes of fighting an election on the issue in the Fall (thus saving his skin from a leadership review in December). This is amidst a cynical Conservative advertising campaign featuring 'Oily the Splot' warning Canadians about the 'Dion Tax Trick', and his new 'Permanent Tax on Everything'. It is in pretty poor taste and makes in clear that Harper doesn't intend to have an honest debate on carbon pricing.
Canada, thanks to it's somewhat enviable position as a major oil producer, will be able to ride out the rapid rise of oil prices quite well. However, it's really a tale of two economies, with Newfoundland, Saskatchewan and especially Alberta being seriously overheated, while the manufacturing heartland of Ontario/Quebec face serious difficulties with the effect of high fuel combined with the rapid appreciation of the Canadian dollar as well as the faltering US economy. Thus the Bank of Canada is trying to keep a steady course with interest rates. Overall, however, even Ontario is showing surprising resilience--its economy grew by -0.3% in Q1, but rebounded in Q2 on stronger consumer and business spending. What Canadians are really watching, anxiously, is the ongoing meltdown in the US economy. I think Canada is also generally concerned with the medium-term outlook for the US. Even if the current downturn is shortlived, the US economic fundamentals spell a disaster in the making.
So, that's my not-that-short assessment of what's going on here.
