Are we benefiting from the strong Canadian dollar?

Logic dictates that a stronger dollar should result in lower prices for Canadians. But what’s really happening?

When the Canadian dollar reached parity with its US counterpart last fall, many heaved a sigh of relief. After many lean years (we remember our dollar at 62 cents US), our imported goods were finally going to cost us the same as in the United States.

It’s getting better

In some ways our situation has improved quite a bit. Indeed, it can’t be denied that the majority of consumer goods would be costing us much more had it not been for the soaring loonie. For example, while Americans have seen the cost of their groceries skyrocket, Canadians have done rather well (see the May Actualis newsletter). Also, anyone shopping for a car will see that the prices for some models have dropped considerably. According to the economists, we haven’t seen consumer prices for important goods like automobiles drop like this in the last 50 years. Globally our purchasing power is greatly improved.

So why do we still have this impression that we are still paying too much?

Differences still exist

In two minutes, a quick, non-scientific test shows that despite everything, many goods are still appreciably more expensive here than they are in the United States, as seen in the table below. Our dollar was at 98 cents US at the time of this survey, so we should expect a difference of about 2%.

This spring the Option Consommateurs* consumer protection group carried out a more thorough investigation. Its conclusion: With the exception of electronic goods, Canadians pay significantly more than the Americans. Even automobiles, with their price reductions, remain more expensive than in the United States.

Source: Option Consommateurs and the JE television newsmagazine

Why?

The Retail Council of Canada explains this phenomenon by the fact that large retailers purchase their inventories up to 12 months in advance. In other words the merchandise was bought before the dollar reached new heights. (That argument is disputed by many who wonder what purpose the famous just-in-time supply principle serves.) According to the Retail Council the “cost of doing business” – labour, transport, etc. – is also higher in Canada, which is reflected in prices.

In fact, it is true that we cannot simply link prices of our consumer goods to the value of the loonie compared to the greenback. Other factors are in play, notably the origins of the items used in making the goods. For example, with the strength of the euro compared to the two main North American currencies, it would be quite surprising if Italian leather became more accessible.

Partly unequal

It should also be known that trade isn’t subjected to the same restrictions here at home or at Uncle Sam’s. Just look at customs duties: A pair of steel toe boots is subject to an import duty of 17.5% when brought to Canada. In the United States the duties are only 8.5%. The same for a CD player: 5% duty in Canada, none in the US.

So, as always, it pays to do your homework. If you think the price of an item is unfair, you must do your research, particularly on the Internet, to get to the bottom of it. This isn’t always an easy task. If you buy online, don’t forget the eventual cost of delivery costs and import tariffs.

And, in the case where a product really is too expensive in Canada, there is still the option of cross-border shopping. Though with gas at $1.50 a litre…

* Investigation by Option Consommateurs, in cooperation with the JE television newsmagazine.

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