Prices expected to soar as loonie takes tumble

Canadians will feel pinch of increasingly costly U.S. imports, experts say

As he sits down at his desk and boots up his computer each day, the first thing Steve Bamford does is visit a currency exchange website.

No, he’s not in the world of high finance. But these days, with the loonie tumbling, the veteran produce wholesaler needs to keep his eye on just where the currency sits at any given moment.

“We’re buying all our product from the U.S. and lots of places in the world in U.S. dollars,” said Bamford. “We have to adjust for every arrival based on what the current currency market is.” For Bamford, that means spending more Canadian dollars to get the same amount of fruits and vegetables that he would have just a few weeks ago.

“If you’re buying in American dollars, it’s immediately affected. And you have to realize our inventory for produce turns every two to three days,” said Bamford.

Eventually, those higher prices get passed on to consumers when they go shopping at the grocery store.

Prices for some U.S. booze from small producers, cross-border holidays and even industrial equipment could also be on the way up as the loonie tumbles, experts say. Monday afternoon, the loonie was trading at 72.77 cents (U.S.), down from more than 80 cents in March.

While a cheaper loonie might make Canadian exports more competitive in the U.S., it’s an overall minus for our consumers and businesses, says Pedro Antunes, chief economist at the Conference Board of Canada.

“It cuts into everyone’s purchasing power, and ultimately, it’s inflationary,” said Antunes.

Even exporters, Antunes noted, often have to buy supplies and

equipment from the U.S.

For Patrick Kaler, the Canadian dollar’s fall couldn’t be coming at a worse time. As CEO of Visit Buffalo-Niagara, Kaler counts on Canadian tourists filling his members’ hotels, restaurants and bars in western New York. Just as that was beginning to happen again as COVID travel restrictions lifted, the Canadian dollar started to fall.

Dan Shorrocks, a vice-president at wine importer Select Wines, said most large-scale producers, particularly those on the LCBO’s yearround general list, charge the provincial liquor retailer a price in Canadian dollars. That means they won’t be seeing a price move on the shelves. But many smaller producers, particularly those selling higher-end products through the LCBO’s Vintages program, typically give the retailer a quote in U.S. dollars.

“The smaller producers would be more likely to do that, so their shelf prices could be changing. But a three-cent move on the dollar, they might just eat the difference,” said Shorrocks.

Still, things could be worse, said RBC Capital Markets currency strategist George Davis.

Among those faring worse? In the last few days, especially, that would be the British pound.

The pound fell to all-time low against the U.S. dollar early Monday after British Treasury chief Kwasi Kwarteng pledged a sweeping package of tax cuts, fuelling concerns about the government’s economic policy as the United Kingdom teeters toward recession.

The pound fell as low as $1.0373, its lowest level since the decimalization of the currency in 1971, before rallying to above $1.06 in London late afternoon trading.

The weakening currency piles pressure on the U.K.’s new Conservative government, which has gambled that slashing taxes — and increasing borrowing to compensate — will spur economic growth. Many economists say it’s more likely to fuel already high inflation, push down the pound and drive up the cost of U.K. government borrowing — a potential perfect storm of economic headwinds.

The Bank of England said it is monitoring the drop in the pound and would not hesitate to boost interest rates to control inflation after doing so just last week.