Slumping dollar means goods cheaper here than in U.S.

It took a while, but retail prices on many goods are actually lower in Canada than they are in the United States. You can thank the plummeting Canadian dollar, according to a leading Canadian economist.

BMO Capital Markets tracked prices of a basket of 17 goods on both sides of the border as the dollar surged in value last year. The dollar hit parity on Sept. 26, 2007, before peaking at just over $1.10 US six weeks later.

Doug Porter, deputy chief economist at BMO Capital Markets, said Canadian prices remained as much as 24 per cent higher during that period than prices for the same goods in the U.S.

At the time, retailers said prices did not drop immediately because it takes time for exchange rate fluctuations to work their way through the system. The Retail Council of Canada cited a number of reasons including that retailers face significant costs that are fixed and not subject to changes in the exchange rate and that retailers buy their merchandise well in advance.

'That basket of goods is now nine or 10 per cent cheaper in real terms in Canada' —Doug Porter

On June 11, 2008, Porter released a followup report that found that while price gaps had narrowed a little, there were still significant savings to be had by buying south of the border. For instance, prices of eight point-and-shoot digital cameras were 26 per cent higher in Canada than in the U.S. ($374 versus $297 US south of the border). A Maytag washer and dryer cost 21 per cent more in Canada than in the U.S.

On Tuesday Porter told the Canadian Convention of the International Council of Shopping Centres that the falling dollar has changed everything.

"That basket of goods is now nine or 10 per cent cheaper in real terms in Canada. That's a big shift in just one year."

In the past month, the dollar has fallen from around 96 cents US to just over 77 cents US, a drop of 19 cents — the biggest one-month drop in history. The previous record was six cents, following the election of the Parti Québécois in 1976.

That $297 US digital camera would be equivalent to $386 Cdn, if it costs $1.30 to buy one American dollar.

Porter points out that the rapid fall of the dollar means that retailers will face markedly higher costs when they buy imported goods, especially from the United States. With the world economy teetering on recession, he said, retailers will likely have to absorb those costs.

Porter suggests that retailers will be in for a prolonged slump as consumers reduce spending on all but the necessities of life. There could be a modest improvement by the second half of next year, but a surge in sales is not in the cards.