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Soaring loonie, higher prices drive Canadian consumers to U.S.
www.chinaview.cn 2007-10-26 03:30:00 Print

OTTAWA, Oct. 25 (Xinhua) -- Beth Evans stepped out of her local Canadian Tire, a franchised box store in suburban Ottawa, Canada, feeling pretty good about her country's soaring currency.

Dubbed the 'loonie' after the bird image on the one-dollar coin, the Canadian dollar has exceeded parity with the U.S. greenback for the first time since 1976. It hit 1.0390 U.S. dollars Tuesday, a 33-year high.

The breakthrough is seen as something of a psychological victory for Canadians who often express an inferiority complex living next to the world's largest economy.

"I think it's a great thing, to be truthful," Evans said. "It'll make the world take notice of how well our economy is doing here."

SHOPPERS FLOCK TO THE U.S.

But confidence in the economy does not necessarily translate into consumer confidence. Some goods such as books list the retail price in various countries and show that Canadians are spending 20percent or more over shoppers in the U.S. That has not changed much even after the loonie has risen to a high level.

Consumers like Evans notice the differential and are holding out until prices drop. "I want to see our prices the same as they are in the States. It's the same product. Our dollars are the same. There's no reason we shouldn't be paying the same price."

Others who cannot hold out are flocking to border crossings throughout Canada, resulting in long lineups in stores south of the border.

For instance, the number of Canadians who purchased vehicles listed in U.S. prices last month jumped 44 percent compared to September 2006.

Some are going to the Internet to shop American goods. EBay Canada says the number of purchases made by Canadians in U.S. dollars increased 17 percent last month compared to September 2006.

It is a new phenomenon. Traveling and shopping in the United States is traditionally an expensive venture for Canadians. For example, in 2002, an item that cost 100 U.S. dollars would have cost an additional 38.21 dollars for a Canadian when the exchange rate was factored in. But things have changed now. The same item today costs less than 100 U.S. dollars.

WHY HIGHER PRICES THAN THE UNITED STATES

Prices in Canada have always been higher due to the exchange rate, or so goes the common belief. But John Williamson of the Canadian Taxpayers Federation says there is more to it. Being a social democracy, Canada has a higher tax structure to pay for government-sponsored programs; minimum wage is higher than in the United States; there is more regulation and red tape in Canada; and tariffs are often substantially higher on Canadian consumers compared to U.S. consumers.

"Too many people think there should be price parity because there is dollar parity," Williamson told Xinhua. "But that's an economic impossibility. Our economy has more costly regulations and higher taxes and until this is changed, Canadians cannot expect price parity with the U.S., which has a more dynamic, lower taxed, less regulated and therefore less costly market."

Diane Brisebois, president of the Retail Council of Canada, would add one more reason for why retail prices have yet to come down to U.S. levels. She said retailers have not been able to reduce their prices because their merchandise costs have not declined. Canadian manufacturers, importers and wholesalers, in most cases, have retained the benefits of the appreciation of the dollar and have not passed the savings on to retailers and their customers.

"Retailers are in business to give the best possible deal to their customers, and they have simply had enough of this unfair criticism," Brisebois said. "They are fed up with the excessive and unjustified cost of their nationally branded merchandise and they will no longer accept the blame for price differentials that are forced on them by the cost practices of many suppliers."

MINISTER CALLS FOR CUTTING PRICES

Canada's Finance Minister, Jim Flaherty, waded into the issue carrying the latest Harry Potter novel. At a press conference Tuesday, Flaherty implored retailers to voluntarily reduce their prices. The book cost him 36 Canadian dollars before taxes in Canada but sold for only 29.74 U.S. dollars in Washington.

"Now, is that a fair price differential?" he asked.

Interventionist measures by the government would be futile, observers say, because too many factors are at play. For instance, another factor that has helped to push the loonie higher is rising commodity prices. Commodities account for 35 percent of Canada's exports, which is why the loonie is viewed as a "commodity-based currency". Oil, in particular, has skyrocketed over the last few years. As a net exporter of oil, Canada is seen as benefiting overall from recorder oil prices. Canada also exports huge amounts of nickel, copper, aluminum and zinc. Forcing the loonie down would not help these industries.

In order to bring prices down manufacturers will have to improve efficiency, experts say. One way to do that is to invest in tools and technologies, such as software and machinery, needed to speed up processing. Still most will make those investments in U.S. products. The low dollar encourages business to shop in the United States too.

RISING LOONIE NOT ALL GOOD NEWS

The rising loonie is not all rosy picture for Canada. For one thing, the Canadian dollar is high in part because the U.S. dollar is suffering. For another, Canada is not unique in its blessing. Other resource-based economies such as Australia and New Zealand are also above parity with the U.S.

But even more serious is that a high dollar relative to the U.S. dollar means Canadian exporters lose ground. Their products are more expensive in the U.S. marketplace. The result has been the loss of more than 200,000 good paying jobs in the manufacturing sector since 2002, according to Statistics Canada. Those voters will have difficulty finding work with similar pay.

Still, consumers like Evans say Flaherty did not have to publicly lambaste retailers for higher prices. She said prices will come down on their own because shoppers like her will simply go to the United States.

"We are thinking about buying a luxury car when we go to our condo in Florida," Evans said, a retiree known as a "snowbird" for spending winters in the U.S. state of Florida. "If there's a chance we can save 10,000 dollars and the duties at the border aren't too bad, why wouldn't we do it?"