News

A year ago, when the Canadian dollar was roughly at par with its U.S. counterpart, Bank of Montreal economist Douglas Porter went shopping and found that Canadians were paying 18-per-cent more on average than Americans for the same items.

Today, with the loonie once again closing in on parity, the price gap is only 6.8 per cent, taking the current exchange rate into account, Mr. Porter found as he compared prices on both sides of the border for such diverse items as chainsaws, Wii consoles, cars, books and Starbucks tall non-fat lattes.

"While there are still some items where significant gaps remain, there are other areas where previously wide differentials have been all but eliminated. ... The two most high-profile and easily comparable goods - cars and books - have seen the most dramatic narrowing," he wrote yesterday in his updated report, Loonie's Leap: Mind the (Price) Gap.

Since Mr. Porter's last cross-border shopping survey, Canadian retailers have been plagued by extreme fluctuations in the purchasing power of the Canadian dollar, which plunged to a four-year low of 77 cents (U.S.) late last year. Over the past two years, however, the currency has averaged 92 cents.

"In light of the extreme moves in the loonie - a 43-per-cent swing in under two years - firms have done an admirable job bringing prices closer in line," and consumers have fewer grounds for complaint, Mr. Porter said.

There was a consumer outcry last year when the dollar was at par and consumers were not noticing a break at the checkout counter. The complaints dried up after retailers started rolling back prices and the dollar fell below 80 cents, Mr. Porter noted.

Wal-Mart Canada Corp. has been rolling back prices since 2007 in an aggressive bid to draw in more customers, company spokesman Kevin Groh said in an interview, noting that the current retail environment is fiercely competitive.

"You can chalk it up to the great parity debate, or the recession that started in 2008, or the [more price-conscious] consumer in 2009," Mr. Groh said.

"Canadian customers are increasingly seeing what the retail world has to offer, and that definitely includes [prices] in the U.S.," he said.

Mr. Porter said, "With the loonie rapidly homing in on parity again, the [pricing] issue could quickly re-emerge, presenting a new and unwelcome challenge for shopkeepers just as consumers are gradually mounting a modest recovery."

When he released his price list last year, retailers noted that they generally purchase their merchandise long in advance and there is a lag before changes in the foreign exchange rate - up or down - are reflected in the prices consumers pay.

"It does take some time," Mr. Porter said in an interview yesterday, "and I think, gradually, a lot of savings have been passed on to Canadians."

The overall inflation rate has not fallen as sharply in Canada as in the U.S., however, because "the drop in the loonie from its lofty perch a year ago has put upward pressure on food costs in particular, but has also kept energy prices from falling as deeply as seen stateside," he wrote.

Mr. Porter's list of 18 items compares costs in Canada with the prices for the same items in the U.S., priced in Canadian dollars. In a few cases Canadians actually pay less - for instance, a Starbucks tall non-fat latte costs $3 in Canada, whereas the U.S. price, expressed in Canadian-dollar terms, is $3.04.

However, barbecues still cost 37-per-cent more in Canada, chainsaws cost 25-per-cent more, and a set of two Essential Michael Jackson CDs costs 19-per-cent more in Canada.