Falling loonie means just more milking of Canadian consumers: Neil Macdonald

Canadians paid more than Americans for most consumer items — even those made in Canada — when the loonie was strong. And we're going to pay more again now that it's gone into a nose dive? What's wrong with this picture? Neil Macdonald asks.

We've just lost 10 per cent of our purchasing power, and no one is upset?

Having lived for so long in the savagely competitive American marketplace, I'm always amazed when I return to Canada at how some of my more bovine fellow citizens are willing to rationalize being milked.

Whenever the discussion drifts to how just about everything in Canada costs more than it does across the nearby American border, some trusting soul pipes up with something like: "Well, that's just the price we pay for our health-care system."

Or: "If that's what it costs to have a more caring society, then I'm willing to pay it."

Even a few years ago, when the loonie was powerful and rising, you'd hear nonsense like that.

For some reason, Canadians tend to conflate the higher taxes we pay, which do go toward financing social programs like health care, and the higher prices we pay, which simply go into some greedy company's bank account.

If you had the gall, as I did after the loonie shot well past the U.S. dollar in 2007, to call one of those companies — say, a clothing retailer, or a big car company like Honda — and ask why Canadian prices were so slow to drop, you'd run into a trained shill who'd rattle off practiced talking points.

Such as: "We still have a lot of inventory in the system that we paid for when the Canadian dollar was weaker."

Or: "We discounted for many years when the Canadian dollar was weaker, so it's only fair that we'd want to recoup some of those losses now."

Well, now that the loonie is down and dropping fast, this "price stickiness" is vanishing. Suddenly, the market is a picture of flow-through efficiency.

Canada's travel industry is now deploying the wonderfully self-referential euphemism "currency surcharge" to cover itself from the falling dollar.

Air Canada, always brilliant at using its market position to maximize profits, is tacking the "surcharge" onto its vacation packages for those trying to escape winter. Other tour operators are doing the same.

It's a way to jack up prices without explicitly admitting it. And you can bet corporate directives are being issued at Canadian retailers and manufacturers to pile on.

Where was the currency discount?

Fair enough, I suppose; businesses pretty much always pass on rising costs of production to consumers.

But I don't recall anyone inventing a "currency discount" back when the loonie was strong.

"It's pure greed," says Bruce Cran of the Consumers' Association of Canada, which monitors a basket of dozens of goods available in both the Canadian and American markets.

Cran says the prices of those goods did narrow somewhat over the years, but Canadians always paid at least 15 per cent more than Americans, even when the U.S. dollar was at its weakest.

A study by the Senate of Canada agreed, although it was unable to articulate any definitive reasons.

A common excuse, says Cran, is "It's the cost of shipping." That one, he says, was particularly rich coming from retailers of Canadian-made goods that sold for less all over the U.S.

Canadian retailers, who have been losing business to internet and cross-border shoppers, may do better if the lower loonie means consumers spend their money closer to home. That's provided that their suppliers don't want to be paid in the U.S. greenback. (Canadian Press)

The Acura MDX sport utility vehicle, manufactured in Ontario, is one example.

Another, says Cran, is Bombardier's snowmobiles, which it sold for up to 40 per cent less in North Dakota than neighbouring Manitoba, and "turned handsprings to prevent Canadians from crossing the border to purchase them."

Cran says Canadian retailers are not always greed-heads, and that sometimes they are dragged into price-fixing schemes against their wills.

He says he was once shown correspondence between a Canadian retailer and the U.S. firm that supplied it with jeans.

"The American company was tacking on 35 per cent because they thought they were entitled to it in Canada. The Canadian company was advised they would lose the franchise if they raised a problem."

Still, Cran suspects the real reason Canadians pay more is that in the end they're willing to: "Some people seem to regard it as some sort of patriotic gesture.

"As a consumer advocate, I find that very frustrating, but that is the thinking on the part of a surprising number of people.

"I've actually received hate calls, from Canadians, for pointing out the lower prices charged in the United States."

Bye-bye purchasing power

Now that Canada's already-high prices are on the rise, though, consumers who've endured years of erosion to their real incomes will have to either band together and get assertive, or strangle.

As Cran points out, "we've lost 10 per cent of our purchasing power. It's happened like lightning. People have to be prepared to do whatever they can to protect themselves."

The Consumers' Association suggests using the internet to find out what an item is selling for elsewhere in Canada and in the U.S., and then using that information to bargain.

At least be aware before making a spending decision, advises Cran.

What Canadian consumers really need to do is assert their collective power, which, even if the will were there, would be more difficult than it sounds.

Big retailers make a tonne of money by keeping the North American markets separate, and aim to keep it that way.

Also, ordinary Canadians can do very little about the international forces that determine what their dollar is worth.

It wasn't so long ago, 2002 in fact, that the Canadian dollar was only worth 62 cents American.

Bank of Canada governor Stephen Poloz seems to be in no hurry to raise interest rates, which would boost the dollar, any time soon. (Reuters)

I don't remember any credible prediction it would ever go that low, and I don't remember many macroeconomists predicting a loonie worth $1.10 US just five years later.

Some suspect Canada's central bank is promoting a weaker loonie, to boost Canadian exports — and the jobs that might come along with them. (There may be something to that. Lots of other central banks, America's included, have pursued the same goal with winks and nudges.)

But Canadian consumers can do something about being treated like a herd of cows by retailers. It just takes a little un-bovine anger.


Neil Macdonald is a former foreign correspondent and columnist for CBC News who has also worked in newspapers. He speaks English and French fluently, as well as some Arabic.


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