Gap between U.S., Canada retail prices may ‘widen once again’

Shoppers should brace for higher prices from a wide range of retailers in the months ahead as companies look to recoup their own elevated operating costs because of the depreciating loonie.

Canadian retail prices have long been higher in Canada compared to those paid by U.S. shoppers, but since about 2008 when the loonie hit parity with the U.S. greenback, the gap has been closing.

But a falling loonie now threatens to reverse that process, a new report from TD Bank predicts.

Some big retailers, such as grocers, have already said publicly their prices are moving up on items like produce and meat as their own costs rise.

READ MORE: Loblaw warns lower loonie pushing up grocery prices

The loonie has fallen about 5 per cent this year, adding to a 7 per cent decline in 2013. The currency is now trading at just under 90 cents US, but experts say it could fall to about 85 cents by the middle of the year.

Local economy boost

There is a silver lining for some, however. The report says the Canadian economy will win back about $4.5 billion in annual sales that Canadians now spend on cross-border shopping trips.

That’s about a fifth of the $22.3 billion spent by Canadian cross-border shoppers last year, TD says – a banner 12-month stretch that saw Canadians dole out twice as much compared to a decade ago (when the loonie was valued at under 70 cents US).

In all, about three million fewer cross-border shopping trips will be made both this year and next as a result of the falling loonie, or about 15 per cent lower than the record numbers seen in 2013.

The economist said they expect a meaningful bump in the local economies of Canadian communities not far from the border.

In particular, TD singled out Ontario cities such as St. Catherines, Hamilton and Windsor, while Sherbrooke in Quebec as well as Abbotsford, British Columbia were mentioned in the report as beneficiaries of slowdown in shopping over the border.

‘Discrimintory’ price gap remains

Still, the downdraft in the loonie will put added pressure on consumers and households by worsening the Canada-U.S. retail price gap — and that gap is still substantial.

TD estimates that adjusted for the exchange rate, the average price difference between U.S. and Canada on the same good is remains about 9 per cent. That gulf is better than what existed a several years ago when the loonie was worth less, but still

In this month’s federal budget, the Conservatives vowed to tackle the matter of so-called “country pricing” among wholesalers, accusing them of gouging higher prices from Canadian companies compared to what retailers in the United States pay for the same products.

READ MORE: Federal budget to tackle U.S.-Canada price gap — but lacks details

Finance Minister Jim Flaherty said the government will move on the matter through new legislation and new powers for competition regulators.

But critics, including TD, question how Ottawa will actually implement the pledge.

“How it will achieve this goal remains unclear,” the bank economists said.