Home Economy Inflation tops list of concerns for Canadian businesses in Q3: survey

Inflation tops list of concerns for Canadian businesses in Q3: survey

by SuperiorInvest

Canada’s year-long battle with inflation is weighing on business owners

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Most Canadian companies have put inflation at the top of their list of concerns for the rest of the year, signaling that the country’s year-long battle with inflation is weighing on business owners.

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The Canadian Survey of Business Conditions, a quarterly survey of about 17,000 businesses conducted by the Canadian Chamber of Commerce and Statistics Canada, found that 60 per cent of respondents see high inflation as their biggest short-term challenge — the highest level of concern on record. since the start of the survey in spring 2020.

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Overall inflation fell in August for the second month in a row The consumer price index rose by seven percent from a year earlier compared to a year-on-year gain of 7.6 percent in July, following a peak of 8.1 percent in June. Still, the latest readings are too high for the Bank of Canada, which aims to keep inflation running at an annual rate of around two percent. The central bank has raised its key interest rate by three percentage points since March, in part to boost confidence that it is serious about bringing price rises under control.

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“Businesses are largely struggling with costs,” said Canadian Chamber of Commerce Chief Economist Stephen Tapp. “It’s extremely expensive to run a business right now, and it’s hard to do because of the lack of access to workers and the skyrocketing cost of entry.”

The report noted a “glimmer of hope” as 34 percent of respondents said they would raise prices in the next quarter, up from 39 percent in the previous survey. Still, Tapp said it was the first time he’s seen most businesses point to a single obstacle of most concern for the next quarter.

Companies seem to fear inflation as it becomes harder for them to maintain their profit margins. Executives cited rising input costs as their second biggest obstacle, with 47 percent of respondents expressing concern, down from 50 percent in the previous quarter. These cost pressures have been particularly acute in agriculture, manufacturing, and accommodation and food services.

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IN latest inflation dataStatistics Canada noted that weather and supply chain issues caused food prices to rise 10.8 per cent since last August, the fastest pace since 1981.

Businesses also have less room to maneuver when it comes to taking on debt. At least 52 percent of businesses surveyed said they could not take on more debt or were not sure if they could. This figure is unchanged from last quarter and is of particular concern to smaller firms and high-touch services, which have been hit harder during the pandemic.

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The ongoing workforce challenges are also cause for concern, with 36 percent of businesses expecting to struggle to attract the right talent. Construction, healthcare, retail and accommodation and food services are the most affected by this problem.

The Bank of Canada’s key interest rate is currently at 3.25 per cent, compared with 0.25 per cent at the start of the year, representing a bigger increase in borrowing costs in six months than occurred in the decade that separated the Great Recession and the start of the pandemic at early 2020. The central bank acknowledges that rising rates, along with high inflation, are further weighing on households and businesses, but insists the damage would be greater if inflationary expectations were to take root.

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South of the border, the U.S. Federal Reserve is on a similar mission to moderate the high rate of inflation with a series of aggressive rate hikes, including A hike of 75 basis points on September 21, which brought the benchmark federal funds rate between three percent to 3.25 percent. It is the highest rate since before the 2008 financial crisis, a measure that policymakers see as necessary to reverse inflation that has accelerated to 8.3 percent.

Fed officials expect to go even further, with median projections by Fed officials signaling that the benchmark rate could rise above four percent this year and above 4.5 percent next year. Such a trajectory could prompt the Bank of Canada to take similar action, as the gap between Canadian and US interest rates would likely put downward pressure on the Canadian dollar, which in turn would maintain upward pressure on inflation by making imports more expensive.

Rising rates could dampen economic growth, but Tapp said businesses appear to remain confident they can weather the turbulence.

Further into 2023, “you see companies expecting modest positive growth,” Tapp said. “In general, businesses are still a pretty optimistic bunch. People who start businesses certainly think they’re going to do well and grow and prosper and all those kinds of things.”

• By e-mail: shughes@postmedia.com | Twitter:

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