Small companies plan for biggest price hikes in more than a decade

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Small businesses are planning sizable 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 raise their prices by an average of 3.3 per cent, according to new survey results from the Canadian Federation of Independent Business. That is the highest reading since data collection began in 2009.

For months companies have been grappling with supply-chain disruptions and escalating shipping and materials costs. That has led to speculation about the durability of inflation and whether policy makers could be forced to react. In the interim, many companies are asking consumers to foot the bill.

“Stuck between a rock and a hard place, businesses appear to be increasingly willing to pass those [costs] onto consumers, whose balance sheets have been largely shielded by the government support programs and reduced spending during months of stay-at-home orders,” said Toronto-Dominion Bank economist Ksenia Bushmeneva in a note to clients.

The CFIB results point to a wide dispersion in pricing plans. Twenty-two per cent of respondents did not intend to raise prices over the next year; however, 23 per cent planned on hiking prices by 6 per cent or more, the most common response. Only 4.2 per cent are prepared to lower prices over the next 12 months.

“It does speak to the variety of business models,” where some companies are insulated from supply-chain issues and others aren’t, said Simon Gaudreault, the senior director of national research at the CFIB.

Larger companies are passing on higher costs, too. In recent weeks, many publicly listed firms have revealed on earnings calls that they’re raising prices, including Procter & Gamble Co. , High Liner Foods Inc. and Spin Master Corp. , the Toronto-based purveyor of children’s entertainment and toys.

“We are seeing increases in input costs, primarily from plastic resin and ocean freight,” Spin Master’s chief financial officer, Mark Segal, told analysts this month, pointing out that computer chips were another source of inflation.

“Our primary goal is to offset any inflationary pressures through cost containment programs and initiatives,” he added. “But to the extent that we cannot do that, we will then go out and seek price increases in order to remain margin-neutral.”

Canada’s main gauge of inflation rose 3.4 per cent in April from a year ago, the quickest pace in almost a decade. It was largely expected because of weak prices when COVID-19 first arrived.

What raised eyebrows on Bay Street was the strong monthly change in prices, 0.6 per cent, given that much of the country was under tighter lockdowns in April. The question now is whether stronger inflation proves fleeting.

The monthly gain “was broad-based across every major product category, some commodity prices have risen even further since [April], and the latest data show wholesale used car inflation catching up with that in the U.S.,” said Stephen Brown, senior Canada economist at Capital Economics, in a report for investors.

The research firm expects 12-month inflation to average 3.1 per cent over the rest of 2021.

“There is a risk that even our above-consensus inflation forecasts prove too modest as the economy reopens,” Mr. Brown added.

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