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Here’s how the loonie’s plunge will hit consumer prices – National

A sideshow to oil’s dramatic plunge has been the no-less-meaningful decline in the Canadian dollar, a process that could counter many of the benefits falling oil prices bring consumers.

The dollar declined more than a quarter of percent to just under 83.5 cents U.S. Wednesday – the weakest exchange rate in nearly six years. Experts suggest the loonie will remain around the low-80 cent level for months, if not decline further.

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For every single product or service that’s imported into the country or priced in U.S. dollars, that means their real cost is climbing.

READ MORE: Here’s what’s in store for supermarket prices next year

New vehicles, machinery, agricultural products as well as fresh and processed fruit and vegetables, snack foods and red meat are just a few products that stand to feel upward pressure on prices amid the loonie’s fall.

Even the much-touted benefits of lower pump prices are diminished because of the dollar’s decline—Canada is a net importer of refined gasoline (which is priced in U.S. dollars).

“It could keep them a tad higher than they otherwise would be,” Robert Kavcic, an economist at Bank of Montreal said of gas prices.

Time of impact

Still, when prices will be affected by the most recent currency swings depends on what products you’re talking about.

There’s also a myriad of other factors that determine whether consumer costs move up or down, not least market-based dynamics like competition as well as supply of goods.

Durable goods

Big ticket items, like new vehicles, furniture and appliances may not feel the effect of the lower dollar for several months to come, experts say. That’s how long it will take for the weaker dollar to wind its way through the businesses making or producing the products.

Big orders and contracts have been signed months in advance at previously agreed upon prices. Those aren’t likely to be renegotiated.

“It doesn’t happen overnight,” BMO’s Kavcic said. “It might take six to eight months to flow through.”

Then again, for durable goods being imported using U.S. dollars now, like foreign cars, they could immediately see their sticker prices rise as importers flow their increased costs onto retail prices.

Food and clothes

Food and clothing are two retail categories that will feel the heat more quickly from the currency’s swoon. So-called non-durable goods are imported in high volumes and are more subject to currency fluctuations than durable goods, experts say.

Experts at the University of Guelph said last month they expect meat and produce price inflation of between 3 and 5 per cent this year, or growth rates that could be double the pace of inflation.

That call still stands. For now.

“We were expecting the currency to drop against the greenback, but not this quickly,” Sylvain Charlebois, a food industry professor at the University of Guelph, said. “If the loonie continues its spectacular decent, we may need to revise our forecast.”

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The lower dollar also discourages cross-border shopping, meaning retailers aren’t competing with lower-priced retailers in the United States.

“There’s going to be a lot less pressure on retailers now to match that U.S. pricing,” BMO’s Kavcic said.

Inflation outlook

Still, determining whether or not the consumer benefits of lower oil are outweighed by the drawbacks from a declining loonie is difficult if not impossible task, experts suggest.

The official inflation reading, which tracks prices on a wide basket of consumer goods, is expected to come in around 2 per cent in 2015 – a slightly lower reading than last year. The loonie’s descent is being offset by oil’s, which has the opposite effect on consumer prices by cutting costs, Kavcic said.

“The flipside is that you have oil down 60 per cent and that’s going to dampen inflation.”

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