Why Do Canadians Always Pay More Than Americans Even When the Dollar is at Parity?

The Canadian dollar is once again in free-fall today, but if you read one of our most popular posts here at Walletpop -- Extreme Couponing isn't as Extreme in Canada -- one of the biggest recurring questions asked was, "Why do Canadians pay more for everything even when our dollar is worth more stateside, or at least at parity?"

Well, when our readers ask questions, we listen. We sent our sleuths to find an answer and I believe we've come up with something definitive.

RELATED LINKS:

• Is the Canadian Dollar Caught in a "Death Grip"?
• Loonie will Stay at Par with U.S. Dollar: Flaherty
• Loonie at Par Means Shopping, Vacation and Investment Bargains

An April 2011 study conducted by BMO Nesbitt Burns economist Douglas Porter found that for goods sold on both sides of the border, Canadians pay 20.4% more than their neighbours to the south. Porter says that the key to pricing equality comes down to how long the Canadian dollar is able to meet or beat its U.S. counterpart.

"The longer it stays above parity, the more we're going to see that price gap slowly but surely get whittled away, but I would emphasize slowly," Porter told CTV News Channel in Toronto, blaming the higher prices on the fact that the American market is far more competitive than the Canadian one, so U.S, retailers lower prices to give them an edge in the fight for every consumer.

"Companies and firms will do whatever they can to keep prices in check in the U.S. and for that reason it is a bit of a shopper's paradise in the U.S. where prices versus the rest of the world tend to be lower," he said.

The Consumers' Association of Canada is far more skeptical. Their president, Bruce Cran, went on the record criticizing retailers for being too slow to react when it comes to pricing equality. "I'm amazed at how long this is going on," Cran said."Canadian retail doesn't seem to match up to any kind of reality. We're being gouged as consumers."

The Consumers' Association's own look into this issue revealed that the pricing disparity is probably more like a 30% increase for Canadians. "The very simple solution is greed on the part of Canadian retailers. They refuse to pass on the savings," Cran told The Financial Post.

But Porter insists it's much more complicated than that because rent, expenses and staff must be paid in Canadian dollars and the tariffs and duties imposed by the Canadian manufacturer don't fluctuate with the exchange rate and are always in Canadian dollars.

"A lot of those costs are in Canadian dollar terms and they aren't going to change just because the Canadian dollar has changed," Porter said. "Just because the Canadian dollar goes up that doesn't mean all their costs will go down."

The news gets worse, as Porter doesn't think prices will ever equalize no matter how strong the loonie becomes against the greenback. "They are never going to equalize at today's exchange rate, though we will see some chipping away at the price gap in the year ahead," he said. "I'm not sure even if we stayed at par for years and years and years that the spread would ever completely vanish."

Luckily, Canadian Finance Minister Jim Flaherty committed to stepping in during an appearance in mid-October. "To the extent this is a tariff-related issue, we can deal with that directly," he said. "If it relates to issues related to credit cards, we have jurisdiction over that. We have a code of conduct with respect to the use of credit cards that we demand adherence to in Canada by issuers."

The minister also called tariffs "protectionist" and reminded those in attendance that the conservative government has worked to eliminate most of them. "If the committee recommends that we change this tariff or that tariff, we'll look very closely at what they recommend and what's feasible," he said.

Dean Beyea, Finance Canada's director of international trade policy, doesn't believe tariffs are a huge factor in creating the rising prices for consumers in this country. "They're a factor, but generally they're low," he told iPolitics. "There are examples of differences in tariff rates in Canada and the U.S., but generally they're similar and quite low in both countries."

Instead, Jim Haley, general director of the economic and fiscal policy branch of Finance Canada, will tell you its much more complex. He lists the variables as market size, volatility of currency exchange rates, distribution costs and the influence of "state of demand," which could effectively lead to "pricing discrimination."

Still, Flaherty has promised that Canada's conservative government will initiate an in-depth investigation in the months to come that will include, consumer groups, economists, retail organizations, small businesses, distributors, importers and everyday Canadians.

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