The Canadian dollar closed Thursday at 92.15 cents (U.S.), down 0.41 of a cent from Wednesday’s close, according to BMO Capital Markets.
It is the fourth daily drop in a row for the Canadian dollar, which is now at its weakest level since October, 2009.
The drop comes amid indications of a slowing economy, including lower housing starts and building permits and a trade deficit that has grown to nine times the forecast.
Hiring slowed in December, according to a Bloomberg survey.
And Bank of Canada Governor Stephen Poloz said this week he’s under no pressure to raise interest rates. Low interest rates make Canadian investments less attractive to foreign investors.
“We saw weak trade, weak manufacturing and the central bank following up by saying we have no timeline to raise rates any time soon,” said Brad Schruder, director of foreign exchange at Bank of Montreal. “That’s like the trifecta of death for the loonie.”
Charlebois said part of the reason the impact on groceries won’t immediately be felt is that large grocers negotiate contracts with suppliers that set prices for three to six months. Daily variations in currency don’t necessarily translate into immediate price adjustments in stores. They also hedge.
And grocers in Canada today are reluctant to pass price increases along to consumers due of fierce competition in the sector.
Target opened 124 stores in Canada in 2013, all of them offering groceries. Walmart Canada added 1.4 million square feet of retail space in 2013, expanding and renovating stores to add groceries and building new stores offering larger grocery sections.
Costco Wholesale is also in expansion mode, recently opening a new GTA location in Mississauga.
“All food retailers know for a fact that the number-one driver for consumer decisions in stores are prices,” said Charlebois.
Food prices skyrocketed from 2009 to 2011, according to Charlebois. But food prices are expected to increase by no more than 0.5 per cent this year.
He expects the loonie to bounce back to 92-94 cents relative to the greenback.
Rob Gerlsbeck, editor of Canadian Grocer agrees the drop in the value of the loonie would have to be sustained to show up on grocery store shelves in this market.
“They don’t want to raise prices, simply because the environment is so competitive. If you’re the first to raise them and raise them too much and the competition feels they can gain a competitive advantage by not raising prices, they are going to do that – it’s just too competitive right now.”
Kevin Grier, senior market analyst for the George Morris Centre in Guelph, says the items most likely to be affected include fresh produce and meats and in a normal marketplace, the prices would rise quickly.
Competition in the marketplace will dampen that, he believes.
He points out that suppliers and grocers have lately benefitted from a drop in the price of commodities used to make grocery products.
“The sugar market compared to two years ago is pretty good for them. Global commodity prices have been declining, led in part by the huge bumper crop of corn in the U.S.”
Shoppers may not notice an immediate spike in prices at the grocery store as a result of the swooning loonie, but if the Canadian dollar keeps dropping and stays low, price increases are inevitable, say leading experts in food distribution and policy.
“It won’t necessarily affect food prices right away, but if the drop continues, we may see prices for produce and fruits increase in the summer because we do import a lot of fruit and produce,” said Sylvain Charlebois, a professor and associate dean at the College of Management and Economics, University of Guelph.
Organics may be particularly hard hit because more than 80 per cent of organics are imported, he added.
“If the loonie goes up again, say next week or in two weeks time, it will be a non-factor. If it stays below 90 cents for a month or two it will impact food prices,” said Charlebois.
source: Sinking Canadian dollar could affect grocery prices | Toronto Star
LOL - you guys need to diet anyway.