The price gap between the Canadian price for retail goods and the same items in the U.S. has narrowed but is still 10 per cent, on average, according to a report from Bank of Montreal.

The gap is even wider for some items – with diapers about 34 per cent more expensive in Canada and running shoes 19 per cent more costly, the report said.

"One of those lingering fundamentals is that the Canada-U.S. price gap remains locked in place, still drawing a phalanx of cross-border shoppers southbound from Canada," BMO chief economist Douglas Porter said.

The price gap became a hot issue five years ago when the Canadian dollar hit parity with the U.S. dollar, but Canadian prices remained higher.

Gap is narrowing

But it has narrowed from 14 per cent in May of this year to 10 per cent in September, BMO found.

Porter attributed that change to the fall of the Canadian dollar, which is currently hovering around 96 cents U.S. It wasn't a matter of prices coming down as much as the Canadian dollar being worth less compared to the U.S. dollar.

The same study in September 2007 found a 24 per cent price gap between Canadian and U.S. prices.

The report said that stiff competition among discount retailers in Canada, including the recent entry of the U.S. chain Target, has had little impact on prices.

And it could not determine whether a change of tariffs on some sporting goods and baby clothes introduced in the March federal budget had any impact on prices.

In better news for car buyers, the gap in car prices is now about six per cent compared to 10 per cent in May.

Porter said it is unlikely the gap will ever be eliminated.

"Wages are higher in Canadian dollars than they are in U.S. dollars, rents are higher, utility bills are higher, property taxes are higher, so a lot of the costs are in local dollars that won't adjust instantaneously with the movement in the currency," he said.

with files from the Canadian Press