Why aren't consumers benefiting from the higher dollar?



    MONTREAL, Dec. 6 /CNW Telbec/ - Why aren't Canadian retail prices being
adjusted more quickly to put them level with U.S. prices and let consumers
benefit from the near parity of the two currencies?
    In an Economic Note published by the Montreal Economic Institute, vice
president and chief economist Marcel Boyer, together with Professor Ian Irvine
of Concordia University, explain that competitive pressures have not yet
produced a market adaptation because of the numerous price rigidities in
Quebec and across Canada.
    Professor Irvine adds: "Consumers can play a major role in getting
businesses to adjust their prices by looking harder for bargains, shopping on
the Internet and putting pressure on retailers by making them aware of their
alternatives."
    Many factors explain these price differences between Canada and the
United States, including:

    Regulated food prices

    Supply management of farm products, high customs duties and controls over
poultry, egg and milk prices prevent Canadian consumers from getting imported
goods in these categories at cheaper prices.

    Services with little outside competition

    A growing share of the Canadian economy consists of services, many of
which cannot easily be imported and thus are protected from foreign
competition and from exchange rate fluctuations.

    Prices with an inflexible component

    Variations in gasoline prices are greatly limited when crude oil prices
fluctuate on world markets because the price of crude accounts for less than
half the price of refined products, with the rest eaten up by taxes and the
costs of transportation, refining, distribution and retail sale.

    Car lessors with a foot on the brake pedal

    In setting different prices for each country, manufacturers may have an
interest in maintaining high prices in Canada to maintain the balance sheets
of their leasing operations, a market accounting for 50% of the automobile
fleet. This represents a multi-billion-dollar gain for them.

    Drugs at prescribed prices

    Drugs are a sector in which prices are regulated, in this instance by the
Patented Medicine Prices Review Board. With prices already set below U.S.
levels, it is unlikely that pharmaceutical companies would be open to
renegotiating these prices downward.

    Inflexible fixed-length contracts

    Limiting the flexibility of prices through fixed-length contracts is a
way of reducing risk both for buyers and for sellers. These limits may be
observed in fruit and vegetable contracts between U.S. suppliers and Canadian
supermarkets as well as in the way U.S. books and magazines are brought to
market.

    The Economic Note titled Domestic prices and the appreciation of the
Canadian dollar was prepared by Marcel Boyer, vice president and chief
economic of the Montreal Economic Institute, and by Ian Irvine, a professor of
economics at Concordia University.

    The Note is available at www.iedm.org

    The Montreal Economic Institute is an independent, non-partisan,
non-profit body that takes part in public policy debate in Quebec and across
Canada, offering wealth creation solutions on matters of taxation, regulation,
and reform of health and education systems. Its publications since 2000 have
included the Report Card on Quebec's Secondary Schools. In 2004 it won a
Templeton Freedom Award for Institute Excellence for the quality of its
management and public relations.




For further information:

For further information: and interview requests: André Valiquette,
Director of Communications, Montreal Economic Institute, (514) 273-0969, ext.
2225, Cell: (514) 574-0969, avaliquette@iedm.org


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