Canada-U.S. Price Differences Report Coming Tomorrow

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CANADA US PRICES
The Senate finance committee looked into why prices are so much higher in Canada than the U.S. (Alamy) | Alamy

Canadians may soon know why they pay more for many products than shoppers south of the border.

The final report of a Senate finance committee study into price differences between Canada and the U.S. is due today.

The committee heard from more than 50 witnesses over a little more than a year, including Bank of Canada Governor Mark Carney, consumer groups and retailers.

The committee started the study after Finance Minister Jim Flaherty wrote them suggesting they take it on.

Senator Joseph Day, chairman of the committee, says the last similar study they took on ended up recommending the government get rid of the penny, a change that took effect this week when the Royal Canadian Mint stopped distributing pennies.

"This report is not as definitive as we were with respect to the penny," Day said.

"We were able to, after hearing from many witnesses, come to a recommendation to the government that was very definitive [about the penny]. In this instance, you'll find when we release the report that we've not been able to do that because there are so many different aspects and market influences depending on the product that you might be talking about."

Complicated reasons

Carney explained that pricing is complicated, with many factors playing a role including:

- Taxes.

- Higher sales and larger markets in the U.S.

- Labour costs.

- Productivity gaps.

- Transportation costs, which in Canada include both gas taxes and a vast area.

Even if the Canadian dollar rises in value against the U.S. dollar, retailers still have to pay many of these costs in Canadian dollars, he said. That means they don't save as much as consumers may think just by looking at the exchange rate.

"The greater the value-added in Canada to a good or a service, the smaller the role played by the exchange rate in its price," Carney told senators on the national finance committee in November 2011.

The Bank of Canada estimated the price gap between the two countries at 11 per cent in September 2011, compared with 18 per cent in April 2011. Carney cautioned, however, that the estimates are based on a handful of categories in the consumer price index, as well as on an informal survey done by the bank, so there's "some uncertainty" around them.

Day says he hopes the Senate study adds to the policy debate and says there will be recommendations in the report.

"I hope that our recommendations will provide some guidance to the government," he said.

"I hope that when our report comes out there will be some information there that will help them, if not help them solve all the problems, at least understand the complexity of the problems and what is at work in the marketplace."

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