A large number of companies still plan to raise their prices more often and more significantly than before to cope with inflation, which does not bode well in the Bank of Canada’s fight to bring back the price increase to 2%.
Half of companies that have changed their prices more often than usual will continue to do so over the next 12 months, indicates the Business Outlook Survey, a survey of around 100 companies. business leaders in the third quarter.
The Bank of Canada has already pointed out that Canadian companies have increased their prices more easily since the pandemic, and more significantly, which has helped fuel inflation.
In the food sector, the lack of competition and electronic displays that facilitate price changes have allowed companies to quickly and fully pass on price increases to consumers.
This movement is starting to slow down, however, notes the poll whose results were published Monday, one week before the next decision on interest rates. “There are signs that pricing practices are becoming normalized,” said the central bank.
A third of business leaders who raised their prices unusually high over the past 12 months are now planning more modest increases. They explain that the increases to be passed on to their customers are smaller, especially when it comes to salaries and basic products.
The other factor that will limit price increases is that consumer demand is less strong, companies say.
In its other consumer survey, the central bank finds that households are becoming more cautious in their spending because their financial situation is deteriorating. Consumers even have the impression that inflation is higher than it actually is, according to this survey.
Both businesses and consumers expect inflation to remain high over the next 12 months, which is a concern for the Bank of Canada.
Inflation measured by the Consumer Price Index increased in July and August, reaching 4%. Core inflation measures, which exclude the most volatile elements, have also increased, Bank of Canada Governor Tiff Macklem lamented last week. The CPI reading for September will be known on Tuesday.
Despite everything, on the business side, confidence in monetary policy is increasing, according to the results of the survey published Monday. More of them are convinced that inflation will return to the 2% target, but for a third of them, this will not happen for at least three years.
Labor costs, housing prices and commodity prices are cited as the obstacles that will prevent inflation from falling quickly.
As they expect their sales to decline, companies intend to reduce hiring and cut expenses. Even if the horizon is darkening, the proportion of companies preparing for a recession over the next year has remained stable compared to the previous survey and represents a third of respondents.