Small businesses predict biggest price hikes in over a decade

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With Toronto still in pandemic containment, Yonge Street is not as busy as it usually would be, as people are staying home and away from stores on March 3, 2021.

Fred Lum / The Globe and Mail

Small businesses are forecasting big price hikes as their input costs rise sharply, the latest sign of inflationary pressure as the economy recovers from the pandemic.

Over the next year, companies plan to increase their prices by 3.3 percent on average, according to a new poll from the Canadian Federation of Independent Business. This is the highest value since data collection began in 2009.

For months, businesses have struggled with supply chain disruptions and escalating shipping and material costs. This has led to speculation about the sustainability of inflation and whether policymakers might be forced to react. In the meantime, many companies are asking consumers to foot the bill.

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“Caught between a rock and a hard place, companies seem more and more willing to pass these [costs] on consumers, whose balance sheets have been largely protected by government support programs and cut spending for months on door-to-door orders, ”Toronto-Dominion Bank economist Ksenia Bushmeneva said in a note to clients .

The CFIB results indicate a wide dispersion of tariff plans. Twenty-two percent of respondents did not intend to increase prices in the next year; however, 23% planned to increase prices by 6% or more, the most common response. Only 4.2 percent are prepared to cut prices over the next 12 months.

“This reflects the variety of business models,” where some companies are isolated from supply chain issues and others are not, said Simon Gaudreault, senior director of national research at CFIB.

Large companies also pass on higher costs. In recent weeks, many publicly traded companies have revealed in earnings calls that they are raising prices, including Procter & Gamble Co., High Liner Foods Inc. and Spin Master Corp. , the Toronto-based supplier of children’s toys and entertainment.

“We are seeing an increase in the costs of inputs, mainly plastic resin and ocean freight,” Mark Segal, CFO of Spin Master, told analysts, noting that computer chips were another source of inflation.

“Our main objective is to offset inflationary pressures through cost containment programs and initiatives,” he added. “But to the extent that we cannot do that, then we will look for price increases in order to remain margin neutral.”

Canada’s leading indicator of inflation rose 3.4% in April from a year ago, the fastest pace in nearly a decade. This was widely expected due to low prices when COVID-19 first arrived.

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What raised eyebrows on Bay Street was the sharp monthly price change, 0.6%, as much of the country was under tighter closures in April. The question now is whether higher inflation is short-lived.

The monthly gain “was generalized in all major product categories, some commodity prices have increased further since. [April], and the latest data shows that used-car wholesale inflation is catching up with that in the United States, ”Stephen Brown, senior Canadian economist at Capital Economics, said in an investor report.

The research firm expects 12-month inflation to average 3.1% over the remainder of 2021.

“There is a risk that even our above consensus inflation forecast will turn out to be too modest when the economy reopens,” Brown added.

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