Canadians lose purchasing power

Posted on September 24, 2007
Filed Under Economy |

Prices are sticky downwards - we all know it. Now Canada can witness it at its finest. Sure the Canadian and American dollars are near parity on the markets, but not at the retail cash registers. You will still find your self paying less for the same product in the United States or elsewhere. Canadians may now be wealthier in global terms, but the even exchange rate with the United States dollar now makes it immediately obvious that they also pay more than Americans for many goods.

A report released Thursday by BMO Nesbitt Burns, a unit of the Bank of Montreal, estimates that products are priced 24 percent higher in Canada than in the United States despite the Canadian dollar’s steady five-year march to parity with the United States dollar.

Retailers say there is a big lag time for events that affect pricing because most merchandise on store shelves was purchased six to 12 months ago. This obviously wouldn’t be the case, were prices to increase. Like I’ve said… prices are sticky downwards.

“For Canadians to believe that our prices will be at par with American prices under any circumstances is not realistic. Americans have 10 times the purchasing power. That’s the reality.” –Diane J. Brisebois, president of the Retail Council of Canada

Currency performance aside, Canadian retailers pay more for goods because their market is one-tenth the size of the United States, said Diane Brisebois, president of the Retail Council of Canada.

“We don’t suspect that the price differentiation will disappear ever, and that is simply based on economies of scale,” she said. “If you buy a dozen doughnuts you get a better price than if you’re buying a single.”

The real danger is how the Canadian economy will be affected by the Canadian traveling south of the border to do his/her shopping, and the American consumer who will no longer come to Canada to shop. How will we respond to this? …the challenges to an economy of prices being sticky downwards…

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