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A price gap between Canadian and U.S. products has widened sharply with a surge in the loonie that should lower prices on this side of the border.

 

Prices on a selection of goods studied by BMO Nesbitt Burns are now an average 20.4 per cent higher than those of the same products in the United States, compared to a spread of less than 7 per cent in the summer of 2009.

 

The study by deputy chief economist Douglas Porter, released Thursday, showed magazines are 20 per cent higher, the book Moonwalking with Einstein 15 per cent above, a Blu-ray version of The King’s Speech 28 per cent, Crate & Barrel appetizer plates 11 per cent, Gap cargo shorts 15 per cent, running shoes a stunning 48 per cent, Titleist ProV1 golf balls 11 per cent, a Cannon Rebel camera just 2 per cent, the 8-gig version of an iPod Touch 24 per cent, and five car models 16 per cent.

 

The high dollar can do many things, Mr. Porter said in the report, which looked at what the loonie will buy in terms of U.S. currency, but it cannot equalize prices across the border.

 

“That more moderate inflation performance versus other countries is overwhelmed by the surge in the currency,” he said. “As a result, the cost of a basket of goods, adjusted for today’s exchange rate, has bolted higher again in Canada relative to the U.S.”

 

The loonie has gained more than 30 per cent over two years, pumped up by high commodity prices, the attractiveness of Canada, and the generally weakening of the U.S. dollar. And economists believe it’s going to stay strong for quite some time.

 

Here’s what the strong dollar does do, according to Mr. Porter:

 

Restrain inflation: “The strong currency rewards consumers first and foremost, by helping hold prices lower than they would be otherwise.” Inflation trends in Canada have dipped below those in the United States recently, Mr. Porter said, helping keep prices down.

 

Keep interest rates low: “With the Fed unlikely to start lifting interest rates for some time yet (we believe they will start in early 2012), and the currency on a roll, the Bank of Canada is constrained from lifting rates as quickly as they would like ... markets now seriously doubt if the bank will even begin hiking rates by July.”

 

Support business capital spending: “A common refrain amid the dollar’s rapid rise is that it will help Canadian business invest in new machinery and equipment, by slashing the price of imported gear. While the long-term evidence is not exactly obvious on this score, we did find some modest impact on real capital spending on M&E of a rising dollar.”

 

Pressure the trade balance: “The real trade balance responds very quickly to changes in the exchange rate, as a rising currency puts abrupt upward pressure on imports. While this effect is partly countered by the improving terms of trade, the shift in volumes tends to dominate. As a result, the current account balance, which saw an average deficit of 3 per cent of GDP over the past two years, is likely to remain uncomfortably wide, despite the run-up in commodity prices.” It won’t dissuade foreign investment, though.

 

(Courtesy of The Globe and Mail)

 

Weak loonie or strong loonie we get screwed :stirthepot: I bet if C$1 = US$1.20 we would still get ripped off.

Edited by jesseps
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I just bought $15 and they charged me $14.88 today

 

Soon I am going to buy something for $25 in Plattsburgh with a $20 bill and ask for change :rotfl:

 

Where it can get really screwy is with cars... for example a Challeger in the US that stickers at $32, negotiate to 30, in Canada $55k no dicker! Honda Civic is about the same price though.

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