Last night, I wrote a long post on exchange rates, and discussed the impact of the Canadian dollar appreciation on our purchasing power. As usual, the best way to demonstrate that increase in purchasing power is with a graphic, so here you go:
What you’re looking at is the relative changes in gas prices, in local currency, in the US and in two Canadian cities, Edmonton and Toronto. In the periods of late-2002 through mid-2008 and again from late 2008 through today, $US gas prices in the US rose rapidly. Canadian gas prices also rose in these time periods, but much less quickly. Why? Because Canadians pay for gas in Canadian dollars, while gas is traded as a global commodity. As the Canadian dollar appreciates, you can buy more gas with every dollar, all else equal. The same applies to just about anything we buy while outside of Canada as well as to goods which we import. In 2011, Canadians imported over $37 billion dollars worth of goods every month (our net imports were smaller, at about $2 billion per month). Before arguing for a devaluation of the Canadian dollar to make producers more competitive, Canadians should remember that any push to do so is a push to reduce Canadians’ real wages and to decrease our purchasing power.
You might be happier paying more for gas and most everything else we buy, but I can’t imagine why you would be.