Saturday, August 13

Businesses set to raise prices and wages, adding to inflation concerns

Small and medium firms expect to raise prices by 3.9 per cent over the next year, the highest rate in more than a decade

Article content

Canadian businesses are planning to hike prices at the highest rate in more than a decade as inflation, supply-chain disruptions and labour shortages weigh on companies.

Article content

Small and medium firms expect to raise prices by 3.9 per cent over the next 12 months, according to a survey released this week by the Canadian Federation of Independent Business. It is the highest bump in expectations since CFIB’s Business Barometer began publishing in 2009.

“Currently, input and labour shortages are key obstacles for firms as they have impeded their ability to restore sales and ramp up production,” Ksenia Bushmeneva, an economist at Toronto-Dominion Bank, wrote in a note Thursday. “Consumer demand remains healthy, but meeting it amid shipment delays and higher input costs is a challenge.”

The latest results play into a broader debate surrounding inflation, which has surged to its fastest pace since 2003 to 4.4 per cent, at a time when the economic recovery has hobbled along against expectations. Early estimates of gross domestic product in September show little change from lower-than-expected growth of just 0.4 per cent in August, Statistics Canada reported Friday. The uneven recovery has already proven tricky for the Bank of Canada as it deals with inflation surging past its mandated target of between one and three per cent.

Article content

At the heart of the surging prices is lagging and disrupted supply to meet burgeoning demand, pushing up the cost of raw materials and goods. Close to a third of survey respondents indicated a shortage of input products is weighing on production growth, the highest level ever in the Business Barometer’s history.

On top of that, the labour market, though it’s fully recovered its pre-pandemic losses, still has sore points. The unemployment rate is at 6.9 per cent, still above the pre-pandemic trend. Nearly half of the firms in the CFIB survey said a shortage of skilled labour is placing limitations on sales or production growth, while 40 per cent said it’s the same for unskilled labour. As a result of the shortage, respondents said they expect to raise wages 2.5 per cent.

Supply and labour shortages have been affecting the firms’ capacity utilization rate, which fell for the first time since May from 74.8 per cent to 73 per cent. Claire Fan, an economist at Royal Bank of Canada, cautioned reading “too much” into the drop as it’s not seasonally adjusted data. “But, capacity issues that are limiting supply will put a floor under price growth in the near-term,” Fan said.

• Email: [email protected] | Twitter: