Consumer prices expected to rise as dollar continues fall
The Canadian dollar settled into a “new normal” this week after the Bank of Canada’s interest rate cut forced the loonie to its lowest level in over six years.
The loonie temporarily fell below 77 cents Friday, being dragged down by low oil prices and a sluggish economy.
Mike Moffatt, an economist with the Mowat Centre, said though “nothing lasts forever,” he’d be surprised if commodity prices shot back up in the next year.
“I do expect to see some movement in oil prices and the Canadian dollar, but with economic weakness in China, difficulties in Europe, overall the outlook for commodity prices looks pretty weak for at least the next six to 12 months,” he said.
And while the low dollar may seem like a “new normal,” Canadians’ collectively short memory forgets that the low dollar is the old normal as well, generally floating well below the American dollar.
Canadian exporters are set to benefit from the low dollar. And that’s good news for people looking to keep their jobs.
“For those working in the company that exports to the rest of the world, their employment prospects [look] a little more certain than [they] did when the Canadian dollar was stronger,” Avery Shenfeld, CIBC’s chief economist, said in an interview.
The sudden low dollar doesn’t mean there will be a surge in job openings but instead more stable jobs. Shenfeld went on to say that if the dollar stays low for several years, companies could look to Canada as an attractive place to set up new warehouses and factories.
“We do expect Canada to get some benefit for existing exporters, but the bigger lift comes when plant decisions are made and Canada looks like a more competitive place to put a new facility than it did when the Canadian dollar was at parity and wages were therefore more expensive,” Shenfeld said.
“The problem is that’s a very slow process.”
But a low dollar isn’t all good news. It hurts any company that has to import anything – from groceries, to technology, and clothes. Those costs are usually passed on to the customer.
“It’s one of those things where it helps some companies and hurts others,” Moffatt said.
WATCH: Retail prices expected to rise even further due to low dollar.
The Bank of Canada said in a report released along with its interest rate cut on Tuesday they expect consumer prices to increase approximately 1.5 per cent by the end of the year as a result of the low dollar.