High loonie no shopping boon
Sep 19, 2007 04:24 PM
Romina Maurino
The Canadian Press
Canadian consumers aren’t likely to see big savings in the domestic market because of the surging loonie, and are being urged by some groups to travel to the U.S. if they want to benefit from near-parity with the greenback.
The Canadian dollar could reach parity with the American buck any day now, following a huge leap Tuesday after the U.S. Federal Reserve surprised investors by cutting its key interest rate by half a percentage point.
On Wednesday, the currency closed at 98.50 cents U.S. after nudging 99 cents overnight.
Lower U.S. interest rates and a new record price for oil of more than US$82 per barrel sent the loonie rocketing upwards – taking hopes of cheaper U.S. imports along with it.
But even though the loonie closed at its highest level since January 1977 after the Fed announcement, economists say it could be up to two years before consumers see any effect at Canadian stores – if the loonie remains at current levels.
“Consumers don’t really lose out so much when the Canadian dollar is really dropping and, conversely, they unfortunately don’t benefit as much when the currency is doing much better,” said Scotia Capital economist Meny Grauman.
“When the Canadian dollar was even around 65 to 70 cents U.S., prices didn’t adjust because of that sharp depreciation of the Canadian dollar. Now we’re seeing the other side of that.”
Bruce Cran, president of the Consumers’ Association of Canada, says the delay in price changes is “unacceptable rubbish,” dismissing the view that the trickle down effect from a high Canadian dollar takes time.
“It’s taken two years for the dollar to raise to parity,” he said. “Are you going to tell me that we have to wait for some reason or other to have the value of our money recognized?”
The group, he added, gets hundreds of complaints each day from consumers who want to see lower prices on everything from produce to electronics and cars.
He has been monitoring the situation over the last 19 months, and concluded that there isn’t one single cent in decreases that anybody can relate to the dollar.
The Consumers’ Association is telling Canadians “that they should look after themselves first,” and shop in the U.S. if the purchase seems viable.
One website out of Victoria, www.UCanImport.com, urges Canadians to “take advantage of the strong Canadian dollar by importing your next car from the United States.”
The website says Canadians can save between $5,000 and $15,000 on their car by shopping across the border, and offers tips and advice, as well as key contacts.
Economists agree that consumers seeking discounts may have to trek across the border for now, especially for things like clothing, books, sports equipment and tools – mid-expense goods that are easy to transport.
According to Doug Porter, deputy chief economist with BMO Capital Markets, when the loonie reaches parity, there will be incredible pressure on Canadian companies to bring prices for goods like clothing and tools closer in line with prices in the U.S.
Online book retailers like Amazon.com may also see a surge in business, since for goods like books “there’s just no question whatsoever about the quality of the items,” Porter said.
Travel agents are already profiting from the high dollar, and expect the positive impact to continue as the loonie surges further.
Christiane Theberge, president of the Association of Canadian Travel Agencies, said agencies have seen a surge of interest in Europe – a continent that had previously failed to attract interest.
“It used to be very expensive going there, and now (travellers) feel that it’s more reasonable,” she said. “We know part of it is due to the good value of the dollar.”
Still, Porter said it was unrealistic for consumers to expect prices to drop along with the exchange rate, noting that retailers have fixed costs in Canadian dollars that are unaffected by currency fluctuations.
Labour and rental costs, property taxes and utility payments must all be factored into prices, as well as printing and packaging costs, if catalogue prices were changed. Packaging changes may also be particularly expensive in Canada because of certain language laws that require printing in English and in French.
“Retailers don’t want to be cutting their list prices one day only to see the currency reverse course and then have to crank those prices back up again,” Porter said. “That especially goes for firms that may only set their prices only once a year.
“They have to leave themselves a margin of error.”
