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Efforts to narrow U.S.-Canada price gap fall short

Discount retail has become an increasingly competitive category in Canada, as U.S. giants like Wal-Mart Stores Inc. and Target Corp. square off against smaller Canadian players.

Chris Young/The Globe and Mail

The arrival of price-slashing U.S. retailers, a high-profile Senate investigation and tariff cuts on select consumer products have done little to narrow the persistent gap between Canadian and U.S. prices.

There's still a substantial 10-per-cent spread, based on a basket of consumer products surveyed by the Bank of Montreal.

The last time BMO sampled cross-border prices in May 2012 the gap was 14 per cent.

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But BMO chief economist Douglas Porter said the drop is mainly attributable to a modest decline in the value of Canadian dollar over the same period.

"It's entirely the currency," Mr. Porter said in an interview Wednesday. "The underlying gap hasn't really changed in the past year."

BMO's "semi-random" survey found almost no impact from the "much ballyhooed" arrival of U.S. retailer Target Corp., which is opening more than 120 stores in Canada.

Target Canada president Tony Fisher has blamed a combination of higher transportation costs, wages, tariffs and Canada's thinly-spread population for the chain's inability to match prices available in the United States.

BMO also found that Ottawa's removal of tariffs on select baby and sporting goods in the March federal budget had "only a limited impact – unsurprisingly, given their targeted nature."

Ottawa is now reportedly considering the possibility of extending tariff cuts to other items, part of what is expected to be a new focus by the Conservative government on the consumer to be outlined in the Throne Speech later this month.

The BMO survey covered everything from cars to iPad tablet computers and digital cameras. It found the largest price spreads on diapers (35 per cent), running shoes (19 per cent) and hardware items (14 per cent).

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A few products were cheaper in Canada, including tablet computers, which were 2 per cent less expensive.

A Senate report earlier this year concluded that the price gap is a function of a multitude of factors, including economies of scale, the larger U.S. market, transportation costs and so-called country pricing phenomenon that leads many retailers to charge more for brand-name items in Canada.

Mr. Porter pointed out that Canada's consumer price index is up 0.6 per cent in the past year, compared to 0.1 per cent in the United States.

Over the longer haul, however, Mr. Porter said prices are narrowing. But he said it is very gradual and concentrated in a few high-profile categories, including cars and books, where there has been a "notable" narrowing in the six years that BMO has been tracking prices.

"Consumers are better informed and are demanding more competitive prices," Mr. Porter said. "Some of it is happening because of consumer pressure."

Part of that pressure is due to the flood of Canadians crossing the border to shop. Millions of people are now making shopping trips south of the border every year.

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BMO estimates that cross-border shopping is now sucking $18-billion a year, or 1 per cent of gross domestic product, out of the economy.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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