Friday, September 21, 2007

Dollars, Parity and Consumer Goods

With the Canadian dollar hovering near parity with the US greenback, we are starting to hear the inevitable "why do Canadians pay so much more for books/cars/whatever?" questions.

I'm not going to comment on the pricing disparities that emerged as the Canadian dollar sagged through much of the 1990s. Those are simply a fact of life.

Many people have wondered aloud why, for example, we see anywhere from a 25% to 50% difference in book prices between Canada and US editions. (Admittedly, I've wondered myself - especially in light of the fact that the C$ has hovered around 10% below the US$ for a couple of years now)

I suspect that we will experience a change in the difference in pricing between Canadian and US retailers in the coming few years. The gap will close, but not because the prices drop dramatically (I don't know too many businesses willing to accept a 20% drop in their raw revenues).

More likely is that we will see the US experience a dramatic level of consumer price inflation. A weakened dollar, combined with a staggering trade deficit, will make it harder for US firms to purchase the manufactured goods that they have been selling. The net result will be a significant increase in US consumer prices in the next couple of years. (Unless a miracle occurs and the current White House (or Congress) sees past the end of their own noses and actually does something constructive with the collapsing mortgage market)

2 comments:

Anonymous said...

I just bought a graphic novel the other day. US price: $15.99. Canadian Price: $23.99.

So your theory is that when the gap closes, it will be because the US price goes up rather then the Canadian price going down?

My cynical opinion of the corporate mind agrees. It's like how the cheap gas flows through the pipeline like molasses and the expensive gas moves at the speed of light.

Quixote

Grog said...

Actually in this case its even simpler - I think a weakened US dollar will trigger an increase in US consumer prices.