Businesses to raise prices as party leaders contend with rising cost of living

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More than a fifth of Canadian businesses expect to raise prices over the next three months, according to a Statistics Canada survey, at a time when the cost of living has become a hot-button issue on the campaign trail.

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The Canadian Survey on Business Conditions, a quarterly report released on Aug. 27, reported that the number of businesses that plan to implement price increases grew from the second quarter this year, up to 21.7 per cent from 19.9 per cent.

“The results overall are a little bit more pessimistic than we’ve been expecting,” said Claire Fan, an economist at Royal Bank of Canada.

Since the start of the year, inflation has consistently grown every month, save for a slight slowdown in June that occurred because prices in May had accelerated at a 3.6 per cent clip off the lows experienced in May 2020. July, the latest read on price pressures, experienced the fastest bout of inflation in a decade, surpassing May’s high to reach 3.7 per cent.

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Economists predicted business conditions would improve into the summer as provinces began reopening.

The wholesale trade, manufacturing and food and accommodation sectors indicated in the survey that they are the most likely to raise prices. Pressures faced by those industries come as expected, however, Fan said, because of the rising costs of input prices.

This lines up with the nearly 40 per cent of businesses overall that said in the survey they expect rising costs of inputs such as labour, capital, energy and raw materials to be an obstacle in the next three months. For manufacturing, accommodation and food, and agriculture, forestry, fishing and hunting, the expectation of rising input prices becomes more acute, with three in five businesses in each sector expecting to contend with higher costs.

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The outlook on business conditions comes amid the second week of the election campaign, where leaders from all parties have been pressed on the issue of affordability and cost of living. Most of the focus has been on the rising cost of housing, with each party promising to build more affordable housing among other policy pledges. All parties have also promised to lower phone bills and the Conservatives have proposed such pledges as a month-long GST holiday in autumn.

Statistics Canada also reported that more than a quarter of businesses expect their profitability to decline over the next three months, while more than 13 per cent expect profitability to go up. Close to three-fifths of businesses expect no change.

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Recruiting skilled employees will be an issue for more than a third of businesses, especially in accommodation and food, manufacturing and construction. In addition, labour shortages are expected to be an obstacle for more than 30 per cent of businesses.

Right now, much of the inflationary pressure is related to temporary factors, such as supply-chain issues, Fan said, and it wouldn’t be a cause for concern yet for the Bank of Canada, which has a mandate to control inflation. The central bank has kept interest rates near zero since the start of the pandemic while the economy recovers. It expects inflation to run hot, above its target range of one to three per cent, through the rest of the year before returning to its target of two per cent in 2022.

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