BoC says Canada-U.S. price gap adjusts with currency rates, but slowly

OTTAWA – The Bank of Canada says its own internal research suggests the U.S.-Canada price gap is not as persistent or inevitable as it seems.

In a speech to Mount Allison University in New Brunswick, the bank’s deputy governor, John Murray, acknowledged that the gap appears to defy exchange rate movements that have of late brought the loonie to near parity with the U.S. dollar.

Murray says Canadians should not expect a perfect correlation between prices and exchange rates, noting there are differences in the two markets, including tariffs, quotas and cost differentials, including transportation costs.

He also notes that complaints by Canadians that they pay more at home for the same item then they would across the border is something that only started happening in the last eight years or so as the loonie began a steady climb toward parity.

For most of the past 30 years, he notes, prices in Canada have actually been significantly lower when the exchange rate difference is considered.

However, Murray discounts using monetary policy as a means of enforcing price parity, saying manipulating interest rates for the purpose would prove fruitless.