A falling loonie brings higher costs

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Drop in value pushes cost for imported items

The Canadian dollar is falling in value along with interest rates but how will it affect Albertans? For starters, a low dollar makes foreign products more expensive.

On Friday, the dollar dropped in value to 79 cents. That means imported products such as electronics, cars and produce are becoming more expensive.

“Anything we have to import is at a higher cost than what we currently have in stock,” said Ross Hodgins, owner of Frontier Honda in Morinville.

Hodgins said the cost of his cars is not expected to change, as 70 per cent of Hondas sold in Canada are also built in Canada. But RVs and many repair parts are manufactured abroad. These items are likely to go up in price, he said.

For now, Hodgins draws from a large inventory of parts and RVs he purchased at a cheaper price before Christmas. He suggests people now weigh their options between getting a better price or buying the newest models of RVs later in the year.

“At this point we are in pretty good shape to give people a good bargain,” he said. “Depending on how long the dollar stays where it is that will dictate how our costing is structured.”

Lower interest rates

This week, the Bank of Canada also its cut its key interest rate by a quarter per cent, a move that follows other central banks around the world. Lowering interest rates is seen as a way to boost the economy by encouraging people to borrow.

But the cuts and falling dollar also come at a time when foreign business investment and consumer confidence have dropped as crude oil prices plummet towards $40 a barrel.

This makes economists such as Todd Hirsch with ATB Financial question whether a devalued dollar will make a positive difference.

“Do we really just want to encourage more borrowing as a way to juice up the economy when, in fact, household debt is already at a record high?” he said.

Hirsch said some people benefit from lower interest rates, such as first time homebuyers and those with a negotiable mortgage. Canadian banks have now lowered their interest rates. But Hirsch is not sure whether they want to “encourage a lot more debt consumption,” he said.

He added that the Alberta housing market remains largely unaffected by a drop in interest rates. People in Alberta decide to buy homes based on the availability of jobs, he said.

As the province prepares for more job cuts in oil and gas industry and related sectors, he expects the economy, and subsequently the housing market, will slow down a little.

“I don’t think the drop in interest rates is the big factor anymore. I think the bigger factor is the energy market,” he said.

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