BUSINESS

Who cashes in on the soaring loonie?

COLIN CAMPBELL October 8 2007
BUSINESS

Who cashes in on the soaring loonie?

COLIN CAMPBELL October 8 2007

Who cashes in on the soaring loonie?

COLIN CAMPBELL

The rising Canadian dollar—which reached parity with the U.S dollar and, by some estimates, is destined for even greater heights—has been a considerable drag on the economy. Just ask any Canadian manufacturer how it feels trying to sell their suddenly more expensive products to the United States. The upside of this shift, however, is that the high dollar gives the average Canadian a nice boost in purchasing power. At least in theory it does.

OUR STRONG dollar has done nothing to lower prices

But even with the meteoric rise of the dollar, consumer prices have remained surprisingly high. In fact, the rising dollar has actually corresponded with a rise in consumer prices, says a recent TD Economics report. Since last January the price of consumer goods has increased 2.1 per cent—a trend that seems to fly in the face of basic economic theory.

The culprit in this upswing is retailers, says the report. “We do have a reduction in import prices. We also have a reasonable reduction in producers’ prices,” says Millan Mulraine, the author of the report. “There’s some disjoint there and the benefit goes to the retailers.” One factor at work is the higher cost that services and distribution plays on the price of goods before they’re sold, he adds. Nevertheless, shoppers might be better off nowadays buying on the Internet or driving across the border.

To make matters worse, the rising dollar is also not doing its part to fight inflation. In theory, it should put a crimp on exports, increase domestic buying power and put a lid on inflation at the same time. But without the corresponding drop in consumer prices, those inflationary pressures remain.

After years of tolerating higher prices for everything from furniture to electronics because of the persistent weakness of a currency once derided as the northern peso, Canadians figured this surge might finally offer relief. Turns out the only payoff is going to the ones behind the cash register. M