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Canadian consumers pay 11 per cent more than Americans, Carney says


Canadians upset about paying more for retail products on this side of the border even with a currency hovering around parity with the U.S. dollar got a bit of reassurance Wednesday that the vexing price gaps have gotten smaller.

Bank of Canada Governor Mark Carney told a Senate committee in Ottawa that an informal Internet survey conducted by his staff during September found that consumer goods cost an average 11 per cent more in Canada than in the United States, a differential that has shrunk from 18 per cent in April.

Still, Mr. Carney – while cautioning that the survey results are merely estimates – acknowledged that important questions remain about why the gap has not narrowed more for similar goods, considering the rise in the loonie.

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The central banker outlined a number of potential factors that explain why prices haven't caught up with moves in the currency. They include: higher taxes, higher labour costs, higher transportation costs – in part because of a smaller, more widely dispersed population – differences in inventory levels and a more concentrated sector on this side of the border that reduces competitive pressure to cut prices.

"In Canada, the top four retailers have a 28-per-cent market share, compared with only 12 per cent in the United States," Mr. Carney noted in testimony to the Senate standing committee on national finance.

On top of lower competitive pressures at home, Mr. Carney noted that despite anecdotes about Canadians heading to the United States for discounts, this doesn't really amount to a significant loss of business. Cross-border shopping represents only about 2 per cent of overall retail sales, he said, even if it's a big headache for businesses that are closest to the United States.

In any case, while the higher currency has been a boon for some companies as they use the extra purchasing power to buy state-of-the-art machinery and equipment overseas, a 10-per-cent gain in the loonie generally can be expected to lower the consumer price index that the bank uses to gauge inflation by just 0.4 per cent.

"Prices take time to adjust," he said. "This is not only true in response to the exchange rate, but also to anything that changes the economic environment."

Retailers and the companies that supply them have blamed each other for the higher prices in Canada, which goes beyond big-ticket automobiles and designer fashions and includes prices for some everyday staples. In September, Finance Minister Jim Flaherty wrote to the Senate committee asking it to study the issue.

"Canadians are rightly irritated when they see large price discrepancies on the exact same products being sold on different sides of the border," the minister wrote. "I share their irritation."

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