Professor Henry Srebrnik

Professor Henry Srebrnik

Monday, October 01, 2007

A strong dollar, but where are the savings?

Henry Srebrnik, [Summerside, PEI] Journal-Pioneer

Now that the loonie has reached virtual parity with the American dollar, isn't it time for prices in Canada to reflect that fact? After all, it's been gaining ground for a few years now.

A recent study conducted by Douglas Porter, deputy chief economist at BMO Capital Markets, indicated that Canadian-dollar prices are on average 24 per cent higher than U.S.-dollar prices on the same items.

The biggest gaps are in electronics, books, and cars.

Said Porter to the Globe and Mail, "It may be only a matter of time before the cross-border shopping dam bursts again. It may already be happening on-line."

Indeed, there has been an 11.08 per cent growth in items bought in U.S. dollars by Canadian on-line shoppers over the past year.

Ian Donker, general manager of Book City, in Toronto, told the Globe and Mail that most prices of books in his store are set in the United States. "But someone who last year was paying $19 for a book, this year doesn't want to pay $19 for a book," when the U.S. price listed alongside the Canadian one is much less. "And it is difficult for the book seller and the Canadian publisher to do much about it." And smaller items, such as books, are easiest to purchase via internet shopping.

Why, asked one Toronto businessman who bought a Subaru Tribeca for US $32,122.50 in Buffalo, NY, should the same car cost Cdn $41,995 in this country? Such price differentials are ridiculous.

"Some people are making a fortune out of this and they're reluctant to give up this very lucrative windfall," declared Bruce Cran, president of the Consumers' Association of Canada, in the Calgary Herald.

So Canadian retailers will face increased pressure to lower their prices accordingly. Already shopping malls in American border towns are packed with Canadians buying products that sell for no more than two thirds of what they cost in Canada.

Yet Diane J. Brisebois, the president of the Retail Council of Canada, has suggested that Canadian shoppers should be patient. Economies of scale, different tax and cost structures, and exchange rates with third countries all play a role.

"For Canadians to believe that our prices will be at par with American prices under any circumstances is not realistic," she remarked in a New York Times article. "Americans have 10 times the purchasing power. That's the reality."

But that's also the problem. It is clear that we all pay too much for goods, and all the various excuses made by retailers won't cut it anymore -- after all, we don't make 24 per cent more in wages and salaries than Americans do.

Despite the North American Free Trade Agreement (NAFTA), Canada sometimes seems little more than a protection racket for those who control our economy. Unless prices come down more quickly, the U.S. will become the equivalent of a "black market," especially for high-ticket items.