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Ottawa’s price-smackdown posturing is lousy policy

Ottawa's continued windmill-tilting at Canada-U.S. consumer price disparities is not only odd politics, it's bad policy. At a time when market forces are already depressing consumer prices to levels so low as to be problematic for Canada's economic health, the idea of imposing new laws to close cross-border price gaps looks both needlessly heavy-handed and counter to the country's broader best interests.

Among the measures announced in the federal budget Tuesday afternoon is a pledge for legislation to ban so-called "country pricing" – under which multinational suppliers sell products to Canadian retailers at a higher price than for identical products in the United States. It's all part of the federal Conservative government's continuing agenda to defend the Canadian consumer.

On a basic level, the politics are pretty straightforward: Identify the enemy (big evil U.S. multinational consumer-goods companies in this case, much like the government has positioned itself alongside the little guy against big, evil cable companies and big, evil mobile-phone providers), make the enemy pay, save the consumer money.

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But for a political party grounded in a belief in the value of free markets unencumbered by excessive government and regulatory interference, a crackdown on the market's freedom to set its own prices smacks of short-sighted pandering to populist rhetoric at the expense of the very political beliefs that (presumably) got you elected in the first place. What's more, it's also probably unnecessary, even counter-productive.

A Bank of Montreal chief economist Doug Porter points out, the decline of the Canadian dollar from parity with its U.S. counterpart a year ago to a little over 90 cents (U.S.) now could very well have wiped out (at least for the time being) much of the gap in multinationals' differing price lists for Canadian and U.S. retailers.

Perhaps the bigger issue, though, is the wisdom of pushing a lower-prices-for-consumers agenda at a time when consumer prices have drifted dangerously low without the aid of heavy-handed legislative solutions. Indeed, the free market has been doing a very good job – too good, even – at driving down retail prices.

The country's consumer price index (CPI) inflation rate is hovering near 1 per cent, at the bottom of the Bank of Canada's comfort level and a full percentage point below the central bank's 2-per-cent policy target. A significant chunk of that disinflationary environment is being fuelled by aggressive pricing competition among retailers, brought on in large part by the arrival and rapid expansion of low-price U.S. chains such as Target and Wal-Mart. The Bank of Canada has said that the retail price wars were the single biggest drag on inflation last year, and will shave 0.3 percentage points off the inflation rate again this year.

Persistent price disinflation is a potential problem for everyone – including consumers and the federal government. It runs the danger of devolving into wage disinflation, slowing the economy and starving consumers of disposable income. It slows revenue growth for a government laser-focused on eliminating its budget deficit before the next election.

In the face of this, a law that would serve to add to the disinflationary fires is both ill-timed and unnecessary. It's inconsistent with the Conservative government's broader goals (balanced budgets and economic prosperity) and its free-market philosophy. It's simplistic political PR posing as policy.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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