The Canadian dollar recently went past parity with the US dollar, leaving the latter for dead as it has zoomed all the way to 1.0582 at the most recent quote. While the US dollar has lost ground against practically every floating currency in recent times, its fall against the CAD has been particularly steep as Canada's oil exports have powered the Canadian currency ahead. As with all good political economy stories, however, there have been dislocations. Since the Canadian dollar bought less than one US dollar until quite recently, most goods have been priced higher in Canada than in the US. Now, irate Canadian consumers are demanding that retailers reflect the new reality of a strong Canadian dollar by pricing their wares accordingly.What have Canadian consumers been doing in light of their new purchasing power? They've been heading south to buy things in now relatively inexpensive US of A. There are limits though on the value of goods they can bring home without getting hit with sundry taxes and duties. Also, they've been buying stuff online from US-based shops to take advantage of the strong CAD. As a result, the volume of parcels that the national postal service handles has, well, gone postal. The Economist has the scoop on the angry Canadian shoppers:
Chris Smith, co-owner of a small bookshop in Ottawa called Collected Works, assumed his customers would remain loyal even as the rapid appreciation of the Canadian dollar against its American counterpart made a mockery of the gap between the twin prices printed on the covers of American books. But when Mr Smith asked a few regulars, he was shocked to find that they were going online to buy American books from retailers south of the border. In an effort to keep his existing trade, he now uses the much lower American figure as the Canadian price, even though this means selling American books at a loss. (In the case of Alan Greenspan's book “The Age of Turbulence”, for example, the prices on the jacket are $35 and C$43.95.)
At least this has moved Mr Smith safely to the sidelines as angry Canadians rebel against paying higher prices for American goods now that the loonie has met and surpassed the value of the greenback (the Canadian currency touched $1.10 on November 7th, its highest level since the 19th century). The Canadian dollar has been rising steadily against the American dollar since 2002, when it hit a historic low of about $0.62. But this year it has soared by almost 25%, owing to a combination of the American currency's weakness and the high prices of Canadian exports such as oil, gas and metals. Consumer grumbling became a roar when the gap between the two dollars closed in late September, making it easy for shoppers north of the border to see how much more they were paying.
Talk of hundreds of thousands of Canadians streaming south in search of bargains captured the headlines. Many went. But cross-border shopping is easier in theory than it is in practice. Canada has stringent limits on the amount shoppers can bring home without paying sales taxes and other duties. Headlights and bumpers on some American cars must be modified for use in Canada. And some firms refuse to honour warranties on imported goods.
All this is too much for many shoppers, who have either turned on their local retailers and demanded immediate discounts, or turned to the internet, where goods such as books are easy to buy. Canada Post, the state-owned postal service, has had to add extra shifts at its international mail-sorting centres as a result.
The government hopes that the reduction in January of the national goods and services tax from 6% to 5% will help, and Jim Flaherty, the finance minister, has called upon retailers to speed up price reductions. David Dodge, the central bank governor, was more nuanced in his comments, urging Canadians to shop around for the best deal, but also pointing out that prices will never be exactly the same on both sides of the border because there is less competition in Canada. State-owned liquor boards in many provinces, for example, have monopolies. When it comes to passing on currency savings, liquor boards are the worst offenders, says Dale Orr of Global Insight, a consultancy.
Retailers who face competition have been forced to react, even as they blame wholesalers and distributors, or inventory lag. In the past month, large American-owned chains such as Wal-Mart, Zellers, the Hudson's Bay Company and Sears Canada have announced new prices for products imported from America.
Will all this placate angry consumers? Perhaps. A recent poll by Ipsos Reid showed that most understood that it would take time for Canadian prices to match those in America. But as Mr Dodge points out, it might not happen. Just as the introduction of the single currency in Europe exposed differences in taxation and regulation among countries, the same is likely to occur in Canada, says Mr Orr. Then it will be the government's turn to deal with consumer complaints.
