6 Things that Cost You More When the Loonie is Worth Less
I hate it when I see prices for items I purchase regularly beginning to increase, but I feel just a teeny bit better about it when I’ve got a logical explanation for it other than the seller wanting to boost their bottom line. For recent price increases you are starting to see, the nose dive taken by the Canadian dollar may shoulder a large part of the blame. Every item that is imported to the country or that has a cost price based in US dollars is very likely to be impacted by a lower Canadian dollar exchange rate.
Here are six things whose prices are susceptible to the dropping loonie:
Food
Food items, especially high-turnover perishables such as produce, will be among the first to show the impacts of the sinking Canadian dollar. We rely heavily on imports, typically priced in US dollars, to stock the produce aisles in our grocery stores and that reliance grows significantly in the winter months. Tropical produce such as bananas, mangoes and avocados are imported from south of the border year round since they cannot be commercially grown in Canada, but even basics such as lettuce, tomatoes and apples are imported from the US in high volume especially during winter months. Large quantities of our packaged foods and snack foods are also imported from the US making them all likely to increase in price in the near term. We’re also sure to see downstream impacts with menu prices at your favorite restaurants rising in stride, since their costs are significantly driven by food prices.
Clothing
Like produce, most clothing is imported in high volumes and turns over fairly quickly, resulting in a quicker flow through impact on prices from a lower Canadian Dollar. The current season’s collections already on store shelves are not very likely to be impacted since they were probably produced and purchased before the loonie fell off a cliff, but watch closely for higher prices in next season’s collections. I’d expect to see prices begin to creep up even sooner at foreign fast fashion retailers like H&M where inventory of their collections turn over multiple times in a season. The lower loonie also diminishes the value of cheaper clothing prices found cross-border shopping in the US, a lower Canadian dollar exchange rate means it won’t be as cheap as when we were a bit closer to parity with the US Dollar.
Smartphones and Other Electronics
Most smartphones and other electronics are also imported from the US and paid for in US dollars. As I’ve discussed in a recent article found here, the declining Canadian dollar has created a gap in Apple’s Canadian retail price vs. its US retail pricing. Apple’s base model iPhone 6 is selling at a CAD $62 discount in Canada when compared to the US, which means Canadian retailers are bringing in CAD $62 less for every iPhone sold vs. iPhones sold in the US. It is surely not going to be very long before we see Canadian iPhone prices hiked to compensate. Similarly, Google is also in this position with its flagship Nexus 6 smartphone. Priced in Canada at a CAD $62 discount (for the base model) vs. the US, Google and retailers are sure to take action soon to rectify the Nexus 6 Canadian dollar pricing gap. This phenomenon is not limited to smartphones; most other imported electronics, from LED TVs to laptops and tablet computers, are in the same boat and likely to see price increases in the near future as well. If you’re looking to purchase a smartphone or other electronics, it may be wise to do it sooner rather than later, before the inventory that retailers purchased prior to the loonie dropping runs out and newly stocked inventory is listed at a higher price to compensate for the lower Canadian dollar exchange rate.
Travel and Vacations to the US
When the loonie drops everything about travel south of the border automatically increases in price. Timing could not be worse for Canadians looking to escape the snow and frigid winter weather we’ve been experiencing. Unfortunately, there’s no way to avoid this unless you’ve got a stash of US Dollars that you had purchased some time ago at a much better exchange rate than you can get today. Hotels, transport, food, attractions, everything will cost you up to 15% more compared to last year when the Canadian Dollar traded for as much as USD $0.94. A more exchange rate friendly alternative to travelling south could be a trip to Europe. The Canadian dollar has actually increased in value over the last year and also remained relatively stable in recent months vs. the Euro, even as it has quickly declined against the US Dollar. A trip to an E.U. nation, especially one struggling economically and experiencing deflation in prices such as Greece or Spain, could turn out to yield some great deals.
Cars
The vast majority of car models are imported to Canada, a few are made domestically but even those are all made by foreign owned companies, making them easily susceptible to a dropping Canadian Dollar. While we may not see an immediate impact to new car prices due to the lower exchange rate, it will eventually catch up. This year’s models have already had their list prices set and current inventory had likely already been produced and purchased prior to the steep drop in the Canadian Dollar, so current sticker prices are less likely to increase. However next year’s list prices are most definitely going to have the lower exchange rate factored in, something to keep in mind if you’re in the market for a new car.
Gas
You might think the bright side to decreasing oil prices would be that prices at the pump would decrease proportionally. However, for Canadians a good portion of that decrease will be offset by the drop in value of the loonie. Although we do have domestic oil production coming from Alberta, the fact remains that Canada is a net importer of refined gasoline, which is what actually fuels your car. Also, the market prices of refined gasoline are based in US Dollars. These factors combine to result in a more muted effect from decreasing oil prices and we will see higher gas prices than we otherwise would have if the Canadian Dollar had remained stronger.