The perception remains firmly anchored. Many Canadians still believe that businesses profit generously from inflation. A little image problem here?
The results of a Modalis Public Opinion poll conducted by Modus Research, released August 22, indicate that a very strong majority of Canadians believe that companies use inflation as an excuse to extract more money from them. This sentiment is shared by a strong majority across all income groups, even in the highest income stratum, where almost three-quarters of respondents believe they are overcharged for products. “While it has been widely denied that corporations are abusing under the guise of inflation, the debate has largely been settled for Canadians,” it concludes.
However, a recent study by analysts published by the Bank from Canada affirms that profits are not a source of fuel for inflation in Canada, contrary to other studies supporting the opposite on a global scale. However, “Canadians largely side with the latter, no doubt influenced by reports of record profits for large corporations.”
More broadly, 95% of Canadians view inflation as a problem that governments must address, making it the most pressing problem today. Additionally, the top three concerns here are related to inflation, the findings read.
The poll was conducted August 1-8 using the Modalis Public Opinion Panel — recruited 100% by random probability telephone sampling. It is based on a representative sample of 1,618 Canadian adults and has a margin of error of plus or minus 2.4 percentage points, 95 times out of 100.
If we return to the study carried out by central bank economists, what was called the greedflation may be a verifiable phenomenon in Europe and the United States, but that is not what happened in Canada, they concluded. Citing the study, our colleague Éric Desrosiers wrote at the beginning of August that, in the Canadian economy, corporate profit margins and inflation have often even followed contrary trends for three years. Except perhaps in 2021, but the increase in profitability would then have accounted for at most 10% of the problem.
That said, we must return to others observations from the Bank of Canada. Thus, during the pandemic and the inflation that followed, businesses and competitors faced the same difficulties, consumers were forced to accept higher prices, for lack of choice. “Under these conditions, companies have made price increases that are more marked and more frequent than usual,” the Bank underlined in its Business Outlook Survey of the third quarter of 2022. To add in its next investigation that the behavior mentioned in the previous quarter has changed. It highlights that most businesses have already returned, or will soon return, to their pre-pandemic behaviors of changing prices infrequently, waiting for concrete signs of cost increases, and monitoring prices closely. competition.
Elsewhere, we can recall that the increase in prices caused by the increase in profit margins of companies was retained by Christine Lagarde, president of the European Central Bank (ECB), on March 16, during a press conference . “Many companies have been able to increase their margins in sectors that have suffered from supply restrictions and the resurgence of demand,” she lamented.
Shortly before, a member of the ECB board had argued that the recovery in demand had allowed companies to also increase profit margins in sectors with asymmetries between supply and demand.
It was illustrated that in the fourth quarter of 2022, half of the price pressure in the Eurozone came from profits, the other half from wages. In short, moreover, producers have tended to exploit bottlenecks or inflationary surges, which make it more difficult to identify the cause of price increases, we deplored.
In the United States, a study published in January by the Kansas City Federal Reserve concluded that corporate profit margins were, in 2021, the most significant factor fueling inflation in economic history. This did not prevent the companies making up the Fortune 500 from adding more the following year and posting a record cumulative profit and a profit margin of 11%.
But we are now counting on the expected weak economic growth, which “should moderate wage growth and also increase competitive pressures, making it more difficult for companies to pass on their cost increases in consumer prices”, perhaps. we hear here and there.
For now, according to a calculation taken from Statistics Canada data on financial statistics for Canadian businesses, the net profit before tax (NBAI)/operating income ratio in the non-financial sector has fallen from 9.7% to 9 .3% between the first and second quarters of 2023. However, $5.1 billion or more than 94% of the total decline of $5.4 billion in BNAI in this sector comes from the oil segment, hit by forest fires . The decline in BNAI reaches 6.2 billion if we add the contribution from mining. For the rest…