Why we pay more than them

The Canadian loonie is strong; it has achieved and retained parity with the US dollar, and may even surge ahead in the near-term.

According to estimates, the Canadian dollar will remain above par vis-à-vis the US dollar at least for the next couple of years.

Then why do Canadians pay more than their southern neighbours for almost everything?

 According to a recent BMO Capital Markets report, despite trading at a three-year relative high to the US dollar, Canadians still pay far more than Americans do for common consumer goods – a whopping 20% more.

Surprisingly, the difference in prices has actually climbed up – instead of going down. For instance, in 2009, when similar price comparisons were conducted, the difference was a mere 7%, and then, the loonie was way below the US dollar.

The BMO report published in Financial Post of April 15 attributes the rise of the Canadian loonie to Canada’s well-deserved reputation for being fiscally reticent and adopting safe policies to emerge relatively unscathed from the global financial crises of 2008-2010.

Apparently, the reason for the stronger loonie having no impact on consumer prices is that suppliers charge Canadian retailers with what is known as “country pricing.”

In effect this means that irrespective of the value of the Canadian dollar, products  are sold to Canadian retailers at a markup that in some cases may even be as high as 22%. This also means that the Canadian retailers often pay more than US consumers.

The Financial Post report offers a two-fold solution:  

· An increase in cross-border shopping. This would affect Canadian retailers and they would start seeking better country pricing from suppliers.

· Long-term strength of the Canadian loonie. This will translate into better country pricing.

Comments (1)
iccc webmaster April 15th, 2011 09:39:41 AM

1 Why we pay more than them
Jai Maru 4/18/2011 6:21:10 PM

Interesting read. It is clear that FP is suggesting Canadians shop South of the border. But, are Canadians truly saving enough to justify cross-border shopping after taking into account duties, taxes, and other fees at the border?

There's also a surge on online purchases where it really does not matter where the product is bought from.

I am curious to get a perspective of a small-to-medium Canadian businesses owner on this topic.

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