Cross-border shopping will never be made obsolete; two Statistics Canada studies published last week refute hopes for an eventual convergence of retail prices in the United States and Canada.
One of the studies shows – not surprisingly – that price-level differences are especially recalcitrant for food products that are subject to supply management or marketing boards, and for alcoholic beverages and tobacco – which are under the influence of excise taxes and provincial government monopolies.
Shoppers on both sides of the Canada-U.S. border might be expected to have virtuous effects, when they shift their demand to the country that has a lower price for a particular consumer good, sooner or later eliminating the difference – after taking into account the exchange rate. One of the two papers uses a method intended to replicate “the back-of-the-envelope calculation” by which many consumers compare prices in the two countries, adjusting for the currency difference.
In fact, American and Canadian price levels do affect each other, but imperfectly. They tend to move closer, crossing paths, only fleetingly staying together.
Curiously, when the Canadian dollar is falling, Canadians do not suffer as much from the rise of the U.S. dollar as would be expected – and do not fully benefit from greater purchasing power when the Canadian dollar strengthens.
Some factors in the divergences are readily understandable from people’s ordinary experience. Though most Canadians live fairly close to the U.S. border, almost all cross-border shoppers incur some transportation costs, such as gasoline.
The American poet Longfellow was not thinking about cross-border shopping when he originated the metaphor of ships that pass in the night; nonetheless, his image expresses the all-too-fleeting convergences of Canadian and American prices.