Dollar daze*


Woo-hoo! Parity at last! Where were you in 1976? Etc.


  • we live in Ontario
  • consumer prices aren’t budging
  • plus, don’t know if you’d noticed, but housing and food prices, which represent a sizeable part of the average household budget, are rising.

Core inflation is actually a bit softer — you know, the type that doesn’t include everyday purchases like gas (for some) or food. This is due to the rise of the C$, according to CIBC:

A stronger Canadian dollar is helping the Bank of Canada achieve its primary objective: returning core inflation to the middle of its 1%-to-3% target range. We’re not there yet, mind you, with core inflation holding above the 2% threshold for a twelfth straight month. But August data nonetheless took a further step in the central bank’s preferred direction, with the year-over-year rate for CPI-X easing a tick to 2.2%. 

Or maybe it’s not, says TD in a note entitled The Strong Canadian Dollar is No Longer an Ally in the Fight Against Inflation:

There has been much talk about the ability of the stronger Canadian dollar to augment the actions of the Bank of Canada in its fight against the elevated inflationary pressures that currently exist in the Canadian economy. This assertion, however, appears to be at odds with the empirical evidence.

Fight! Fight! Fight!

The TD note explains:

Using Canadian data between 1998 and 2007, we estimated various econometric models and found no statistically significant evidence of any pass-through [of currency appreciation to consumer prices] from movements in the Canadian dollar to consumer prices(1). In other words, the appreciating Canadian dollar has not had any significant impact on domestic consumer prices – and should impact it little in the coming months. Indeed, while our estimations suggest some pass-through in the short-run (though statistically insignificant), the impact completely washes out in the long run.

CIBC, meanwhile, turns to the car lot for justification for its thesis:

Returning the focus to core inflation, the Canadian dollar’s unprecedented ascent is helping to restrain the pace of price increases. As steamy as core inflation has been, think where it would be in the absence of near-60% currency appreciation over the past five years, a move that has materially cheapened imported goods, including autos, where the price of buying or leasing a new vehicle fell a further 1.8% in August.

Weak argument. There are other factors at work in the car business, such as: sliding sales among the Big 3, leading to  non-stop loss-leader deals that move the entire auto market lower, and a reliance on financing arms to make money, now threatened by the credit crunch.

CIBC seems to be a little giddy at the loonie’s rise. An interview with Managing Director Avery Shenfeld on confirms the breathless excitement as he answers the question below just like an eager job applicant who uses the classic “what do you see as your biggest weakness?” question as an opportunity to flog a positive quality, like dogged determination,  or a constant need for self-improvement:

What are the biggest disadvantages [to the higher dollar]?

For consumers, this is nothing but a win, unless of course you lose your job because the businesses you work in is no longer competitive when paying you in a stronger currency.

Hmmm, you kind of lost me (and the entire export-oriented part of the economy) on the last part.

*Proposed title for a week-long segment on the dollar’s ascent in 2005; actual title going to air was the ridiculous “Flight of the Loonie”, complete with animated graphic.